Ahlgren v. Miller (In re Holbert)

• Decision Date: 19 August 2022
• Docket Number: Bankruptcy Case No. 21-50100,Adversary Proceeding No. 21-05006
• Citation: 643 B.R. 332
• Parties: IN RE: J. Brockton HOLBERT, Debtor. Erik A. Ahlgren, Trustee, Plaintiff, v. Lucinda Miller n/k/a Luncinda Engen, MAG Law Offices, PC d/b/a Guzior Armbrecht Maher, Computer Forensic Services, LLC, and David Riley, Defendants.
• Court: U.S. Bankruptcy Court — District of Minnesota

643 B.R. 332

IN RE: J. Brockton HOLBERT, Debtor.Erik A. Ahlgren, Trustee, Plaintiff,

v.Lucinda Miller n/k/a Luncinda Engen, MAG Law Offices, PC d/b/a Guzior Armbrecht Maher, Computer Forensic Services, LLC, and David Riley, Defendants.

Bankruptcy Case No. 21-50100

Adversary Proceeding No. 21-05006

United States Bankruptcy Court, D. Minnesota.

Signed August 19, 2022

Erik Ahlgren, Ahlgren Law Office, Fergus Falls, MN, Plaintiff, Pro Se.

Sarah C. Duffy, Ahlgren Law Office PLLC, Fergus Falls, MN, for Plaintiff Erik A. Ahlgren, Trustee.

Nicole L. Anderson, Forest Lake, MN, for Defendant Lucinda Miller.

Anne Lockner, Robins Kaplan LLP, Minneapolis, MN, Jaime Wing, Norton Rose Fulbright US LLP, Minneapolis, MN, for Defendant Computer Forensic Services, LLC.

Michael J. Sheridan, Atlas Law Firm, Anoka, MN, for Defendant MAG Law Offices PC dba Guzior Armbrecht Maher.

ORDER GRANTING MOTION FOR SUMMARY JUDGMENT AND DISMISSING ADVERSARY PROCEEDING

William J. Fisher, United States Bankruptcy Judge

At Duluth, Minnesota.

This adversary proceeding came before the Court on May 19, 2022 on Computer Forensic Services, LLC's ("Computer Forensic") motion to dismiss for failure to state a claim upon which relief can be granted pursuant to Federal Rule of Civil Procedure 12(b)(6), as incorporated by Federal Rule of Bankruptcy Procedure 7012(b). Def.’s Mot. Dismiss, ECF No. 49; Fed. R. Civ. P. 12(b)(6) ; Fed. R. Bankr. P. 7012(b). In this adversary proceeding, the Chapter 7 Trustee, Erik Ahlgren ("Trustee"), seeks to avoid an alleged preferential transfer pursuant to 11 U.S.C. § 547(b). In its motion, Computer Forensic argues the relevant transfer occurred before the ninety-day preference period of 11 U.S.C. § 547(b)(4)(A) and, therefore, the transfer is unavoidable. Def.’s Mem. Supp. Mot. Dismiss 1, ECF No. 49. The Trustee filed a response opposing the motion and disputing the relevant transfer date. Pl.’s Resp. to Def.’s Mot. Dismiss, ECF No. 53. At the hearing, Erik Ahlgren appeared as the Plaintiff; Nicole Anderson appeared for Lucinda Miller n/k/a Lucinda Engen ("Ms. Miller"); Jaime Wing appeared for Computer Forensic; and Michael Sheridan appeared for MAG Law Offices, PC d/b/a Guzior Armbrecht Maher ("MAG Law"). Ms. Miller and MAG Law supported Computer Forensic's motion. The Court took the motion under advisement. The Court is treating the motion to dismiss as a motion for summary judgment under Federal Rule of Civil Procedure 56, as incorporated by Federal Rule of Bankruptcy Procedure 7056, on the issue of the date of the transfer. See Fed. R. Civ. P. 12(d) (allowing such treatment); Fed. R. Civ. P. 56 ; Fed. R. Bankr. P. 7056. For the reasons stated below, the Court grants summary judgment as to Count I. Because the remaining counts are predicated on Count I and 11 U.S.C. § 547(b), the adversary proceeding must be dismissed.

PROCEDURAL BACKGROUND

The Trustee commenced this adversary proceeding on July 28, 2021. Compl., ECF No. 1. There have been two amended complaints filed. Am. Compl., ECF No. 18; Second Am. Compl., ECF No. 45. The operative complaint is the second amended complaint, which was filed by the Trustee on February 24, 2022 ("Complaint"). Second Am. Compl., ECF No. 45 [hereinafter, "Compl."]. The Complaint consists of five counts. Id. In Count I, the Trustee seeks to avoid an alleged preferential transfer from the Debtor, J. Brockton Holbert ("Debtor" or "Mr. Holbert"), to Ms. Miller pursuant to 11 U.S.C. § 547(b). Compl. ¶¶ 26–34. In Counts II through IV, the Trustee alleges subsequent transferee liability against MAG Law, Computer Forensic, and David Riley, respectively, pursuant to 11 U.S.C. § 550(a)(2). Compl. 7–8. David Riley is no longer a party to this adversary proceeding, as he was dismissed by the Trustee. Notice of Dismissal, ECF No. 33. Finally, in Count V (inadvertently labeled Count IV), the Trustee seeks to disallow the Defendants’ claims against the Debtor's bankruptcy estate pursuant to 11 U.S.C. § 502(d). Compl. ¶¶ 40–41.

There were two previous dispositive motions filed in this adversary proceeding. Those motions were filed in response to previous versions of the Complaint. First, Ms. Miller filed a motion to dismiss the original complaint for various reasons, including for failure to state a claim upon which relief can be granted pursuant to Federal Rule of Civil Procedure 12(b)(6), as incorporated by Federal Rule of Bankruptcy Procedure 7012(b), on October 1, 2021. Def.’s Mot. Dismiss, ECF No. 10; see also Pl.’s Resp. to Def.’s Mot. Dismiss, ECF No. 13; Fed. R. Civ. P. 12(b)(6) ; Fed. R. Bankr. P. 7012(b). The Court denied Ms. Miller's motion because the Court found, among other things, that the Trustee sufficiently alleged all elements of a preferential transfer under 11 U.S.C. § 547(b). Order Den. Def.’s Mot. Dismiss, ECF No. 15. Second, MAG Law filed a motion for summary judgment as to the first amended complaint under Federal Rule of Civil Procedure 56, as incorporated by Federal Rule of Bankruptcy Procedure 7056, on December 21, 2021. Def.’s Mot. Summ. J., ECF No. 29; see also Pl.’s Resp. to Def.’s Mot. Summ. J., ECF No. 31; Fed. R. Civ. P. 56 ; Fed. R. Bankr. P. 7056. Pursuant to the Court's order, the parties submitted additional briefing. Order Cont. Hr'g, ECF No. 35; Def.’s Suppl. Br. Supp. Mot. Summ. J., ECF No. 37; Pl.’s Suppl. Br. Resp. to Def.’s Mot. Summ. J., ECF No. 38. The Court denied MAG Law's motion because the Court found that the record was deficient. Order Den. Def.’s Mot. Summ. J., ECF No. 43. In deciding MAG Law's motion, the Court raised the issue of whether the deposit of the sale proceeds with the Mille Lacs County Court (described below) was analogous to the creation of an escrow. See generally, Matter of Newcomb, 744 F.2d 621 (8th Cir. 1984) (discussing when a transfer occurs under an escrow arrangement). Neither MAG Law nor the Trustee had briefed that Eighth Circuit case law.

Computer Forensic, which was added as a defendant in the second amended complaint subsequent to the Court's ruling on MAG Law's motion, filed the present motion as a motion to dismiss for failure to state a claim upon which relief can be granted pursuant to Federal Rule of Civil Procedure 12(b)(6), as incorporated by Federal Rule of Bankruptcy Procedure 7012(b), on March 28, 2022. Def.’s Mot. Dismiss, ECF No. 49; Fed. R. Civ. P. 12(b)(6) ; Fed. R. Bankr. P. 7012(b). The Trustee filed a response on April 15, 2022. Pl.’s Resp. to Def.’s Mot. Dismiss, ECF No. 53. The Court held a hearing on April 20, 2022. At the hearing, the Court determined it was appropriate to treat the motion to dismiss as a motion for summary judgment. See Fed. R. Civ. P. 12(d) ("If, on a motion under Rule 12(b)(6) or 12(c), matters outside the pleadings are presented to and not excluded by the court, the motion must be treated as one for summary judgment under Rule 56. All parties must be given a reasonable opportunity to present all the material that is pertinent to the motion."). The parties agreed that such treatment is appropriate for the transfer issue under 11 U.S.C. § 547(b)(4)(A). The Court continued the hearing to May 19, 2022 and gave the parties until May 12, 2022 to file supplemental briefs. Order Cont. Hr'g, ECF No. 56. Both Computer Forensic and the Trustee properly briefed the Eighth Circuit case law raised by the Court previously. See, e.g., Def.’s Mem. Supp. Mot. Dismiss 7, ECF No. 49; Pl.’s Resp. to Def.’s Mot. Dismiss 5, ECF No. 53; Def.’s Suppl. Br. Supp. Mot. Dismiss 1, ECF No. 58; Pl.’s Suppl. Br. Resp. to Def.’s Mot. Dismiss 4, ECF No. 59. As mentioned above, Ms. Miller and MAG Law support Computer Forensic's motion. See Def.’s Suppl. Br. Supp. Mot. Dismiss 15, ECF No. 58 (signatures of counsel). All parties submitted a factual stipulation. Stip., ECF No. 57. The Court held oral arguments as scheduled on May 19, 2022 and took the motion under advisement.

JURISDICTION

The Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. §§ 157 and 1334. This adversary proceeding is a core proceeding under 28 U.S.C. §§ 157(b)(2)(B) and (F). All parties have consented to the entry of final orders and judgment by this Court. See Def.’s Statement Consent, ECF No. 9 (Ms. Miller); Def.’s Answer 12, ECF No. 22 (MAG Law); Compl. ¶ 6 (Trustee); Def.’s Statement Consent, ECF No. 55 (Computer Forensic).

UNDISPUTED FACTS

Nearly all the following facts come directly from the parties’ factual stipulation. Stip., ECF No. 57 [hereinafter, "Stip."]. In 2003, Mr. Holbert purchased the real estate and structures located at 7854 Tailor Road, Wahkon, Minnesota 56386 ("Property") pursuant to a contract for deed, dated August 1, 2003, from vendors Herm A. Weber and Arlie M. Weber, husband and wife. Stip. ¶ 1. On or about August 30, 2010, Mr. Holbert and Ms. Miller entered into an agreement by which Ms. Miller received a one-half interest in the Property. Id. ¶ 2. On or about May 2, 2012, Mr. Holbert recorded a deed conveying an interest in the Property to himself and Ms. Miller as joint tenants. Id. ¶ 3.

On November 10, 2015, Ms. Miller commenced a Minnesota state-court civil action in Mille Lacs County, Minnesota styled Lucinda L. Miller v. J. Brockton Holbert, Noble Wear, Ltd., and Water and Woods Gallery and Gifts, Inc. d/b/a Pacific and Maine, No. 48-CV-15-2178 ("Minnesota Action") asserting several causes of action against the defendants. Id. ¶ 4. More specifically, Ms. Miller alleged twenty causes of action, two of which included fraud and breach of warranty for Mr. Holbert's alleged actions regarding the Property. Id. ¶ 4, Ex. 4. The other causes of action mainly pertain to the parties’ business dealings. Id. Mr. Holbert also filed counterclaims against Ms. Miller. Id. ¶ 4, Ex. 5. They each requested a partition of the Property, though apparently they could not agree on the nature of the partition (e.g., in kind or sale). Id. ¶ 5, Ex. 6. On February 9, 2018, the Mille Lacs County Court appointed three referees to "a...