Ahlgren v. Dailey (In re Schnoor)
| Decision Date | 16 May 2014 |
| Docket Number | Bankruptcy No. 13–50630.,Adversary No. 13–5030. |
| Citation | 510 B.R. 868 |
| Parties | In re Timothy Francis SCHNOOR, Debtor. Erik A. Ahlgren, Trustee, Plaintiff, v. Kim Marie Dailey, Defendant. |
| Court | U.S. Bankruptcy Court — District of Minnesota |
OPINION TEXT STARTS HERE
Erik Ahlgren, Fergus Falls, MN, pro se.
Kim Dailey, Pine River, MN, pro se.
Edward Randolph Shaw, Attorney Edward R. Shaw P.A., Brainerd, MN, for Defendant.
This adversary proceeding came on for trial on March 24, 2014 on the plaintiff's complaint to avoid the transfer of farm equipment to the defendant. Erik A. Ahlgren appeared in propria persona. The defendant appeared pro se. This court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. §§ 157(b)(1) and 1334, and Local Rule 1070–1. This is a core proceeding within the meaning of 28 U.S.C. § 157(b).
On July 18, 2013, the debtor, Timothy Francis Schnoor, filed a voluntary petition for chapter 7 bankruptcy. Prior to the filing, he owned various pieces of farm equipment, a remainder interest in property owned by his mother, real estate consisting of two parcels, each forty acres, and a log home. The real estate was encumbered by liens held by Alpine Bank and Lake State Bank.
As stipulated by the parties, the farm equipment and its values are listed as follows:
Equipment Book Value
John Deere 950 $1,000 John Deere 4640 $24,000 John Deere 4430 $16,000 John Deere 4230 $10,000 Massey Fergusson 265 $4,500 John Deere 430 $3,000 Ford 24' Disc $2,500 John Deere A2500 $2,500 John Deere 7200 $2,000 International 1440 $8,000 Bobcat $18,000 Bobcat $18,000 Kenworth Dump Truck $18,000 Cleavlan Grater $2,000 Total $129,500
The debtor transferred the above farm equipment, the two forty-acre parcels and the log home to the defendant, Kim Marie Dailey. The date of this transfer is disputed. The defendant paid a total purchase price of $238,274.87. $100,000 of the purchase price was allocated toward the log home, $50,000 toward the east forty-acre parcel, $50,000 toward the west forty-acre parcel and $35,142.87 toward the farm equipment. The remaining $3,132 went to closing costs.
The defendant does not dispute these allocations. The certificates of real estate value filed with Cass County indicated that the aggregate value of the real estate was $200,000, the title insurance for the real estate had a policy amount of $200,000 and a 2011 appraisal estimated the total value of the real estate between $209,500 and $213,500.
After the transfer, the debtor was left with little assets. In Schedule A to his bankruptcy petition, the debtor listed the total amount of his assets as $113,184.83. This amount included the remainder interest in his mother's homestead valued at $104,481. In Schedule F, the total amount of the debtor's liabilities was listed as $185,196.76.
After the transfer the debtor continued to use the farm equipment and farm the land. The defendant, on the other hand, did not. The defendant testified that in exchange for the debtor's continued use of the equipment and the land she received payments from the proceeds of the crops. Specifically, she received $12,562.30 in 2010 and $11,387.29 in 2011. The defendant never reported this farming business or income on her tax returns. In 2010, 2011 and 2012 the debtor consistently reported and recognized farming income on his tax returns. He also claimed a deductionfor farming expenses for repairs and maintenance during those years.
The relationship between the defendant and the debtor spanned two states and many years. The debtor and the defendant met in high school but were mere acquaintances at that time. After high school, in the 1990's, the debtor moved to Illinois. Sometime between then and 2005, the debtor and the defendant reconnected. In 2005, the defendant's also moved to Illinois. In 2006, the debtor sold his Illinois home and claimed he lived on the floor of his work place. The debtor denied living with the defendant during this time but admitted that he would take care of her property and horses while she was out of town. He also testified that from 2006 to 2010 they slept together “every now and again.”
In 2009, the debtor left Illinois and moved into his mother's house in Minnesota. In 2010, the defendant also moved to Minnesota and temporarily lived at the debtor's mother' house. Between October 2010 and September 2011 the defendant began paying many of the debtor's debts. Specifically, she made payments totaling $26,469.87 to Alpine and Lake State on the loans encumbering the real estate. In May 2011, the defendant co-signed a loan for the debtor. They also opened a joint bank account and the defendant gave the debtor a credit card connected to her individual account. From there, the debtor started regularly using the defendant's bank account. On July 20, 2013, two days after the debtor filed for bankruptcy, the debtor and the defendant were married. Despite the history of their relationship, the debtor stated on his bankruptcy schedules that his relationship to the defendant at the time of the transfer was “none.”
On October 23, 2013, the trustee filed this adversary proceeding to recover the transfer of the farm equipment pursuant to 11 U.S.C. §§ 548 and 550.
The trustee seeks to avoid the transfer of the farm equipment pursuant to § 548. Section 548 of the Bankruptcy Code provides, in pertinent part:
(a)(1) The trustee may avoid any transfer .... of an interest of the debtor in property .... that was made or incurred on or within 2 years before the date of the filing of the petition, if the debtor voluntarily or involuntarily—
(A) made such transfer or incurred such obligation with actual intent to hinder, delay, or defraud any entity to which the debtor was or became, on or after the date that such transfer was made or such obligation was incurred, indebted; or
(B)(i) received less than a reasonably equivalent value in exchange for such 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....
To avoid a transfer under this statute the trustee must prove that it occurred within two years before the date of the filing of the petition. Here, the trustee maintains that the transfer occurred in December 2011 while the defendant argues that it occurred in October 2010.
At trial, the trustee presented overwhelming evidence in support of his position.The bill of sale for the farm equipment, the buyer's settlement statement, the seller's settlement statement and the warranty deed each state that the transfer occurred in December 2011. These documents were produced by third parties, presumably partially with information provided by the defendant and the debtor. In fact, the debtor put the date of the transfer as December 2011 on his statement of financial affairs. It was not until this action was brought that the debtor claimed that the transfer occurred earlier.
The defendant, on the other hand, provided little evidence to support her claim that the transfer occurred in October 2010. She argues that in October 2010 she and the debtor made an oral agreement in which she promised to assume the Alpine and Lake State loans in exchange for the property and farm equipment. The defendant alleges that payments made from her bank account to Alpine and Lake State in 2010 are evidence of their agreement.
Indeed, between October 2010 and September 2011 payments were made from the defendant's account to Alpine and Lake State. However, during that same time period, the debtor paid the defendant a total of $23,959.59. The defendant explained that these payments were consideration for allowing the debtor to farm her land and use her equipment. However, the defendant did not report this income on her tax returns. Conversely, the debtor not only claimed farming income on his 2010, 2011 and 2012 tax returns but he also claimed a deduction for farming expenses for maintenance and repairs. These deductions are contrary to the defendant's claim that the debtor no longer owned the property after October 2010.
A logical explanation for the debtor's payments is that they were simply intended to reimburse the defendant for making timely payments on the Alpine and Lake State loans. Further, the billing statements for the payments made by the defendant to Alpine and Lake State continued to be addressed and mailed solely to the debtor, and no financing statements were filed by either bank to reflect a change in ownership of the property.
Based on a totality of this evidence, I do not believe that the debtor and the defendant entered into an oral agreement for the transfer of the equipment, much less that they actually transferred it, in October 2010. I find that the transfer occurred in December 2011, well within the two years preceding the bankruptcy filing.
To prevail on a claim under § 548(a)(1)(A) the trustee must prove that the debtor made such transfer with actual intent to hinder, delay, or defraud any entity to which he was indebted. The Eighth Circuit has held, “because proof of actual intent to hinder, delay or defraud creditors may rarely be established by direct evidence, courts infer fraudulent intent from the circumstances surrounding the transfer.” Brown v. Third Nat'l Bank (In re Sherman), 67 F.3d 1348, 1353 (8th Cir.1995) (citing Max Sugarman Funeral Home, Inc. v. A.D.B. Investors, 926 F.2d 1248, 1254 (1st Cir.1991); Matter of Fitzpatrick, 73 B.R. 655, 657 (Bankr.W.D.Mo.1985)). For guidance, the court may look to the state's codification of the common law badges of fraud. Id. “Once a trustee establishes a confluence of several badges of fraud, the trustee is entitled to a presumption of fraudulent intent.” Kelly v. Armstrong, 141 F.3d 799, 802 (8th Cir.1998).
Minnesota's Uniform Fraudulent Transfer Act lists eleven badges of fraud to consider in determining...
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...the “important elements” of “(1) fair market value and (2) whether there was an arm's length transaction.”22 Schnoor v. Dailey (In re Schnoor) 510 B.R. 868, 874 (Bankr.D.Minn.2014) (citations and internal quotation marks omitted). A monetary payment is unquestionably “value.” In re S. Healt......
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...payment, even though this imposes a cost greater than the net benefit to the transferee. See, e.g., Ahlgren v. Dailey (In re Schnoor), 510 B.R. 868, 875 (Bankr.D.Minn.2014). 18. This value is consistent with the actual 2012 sale of VMark in the Qualtec bankruptcy, which generation considera......
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