Arvest Bank v. Cook (In re Cook)
| Decision Date | 09 January 2014 |
| Docket Number | BAP No. 13–6014. |
| Citation | 504 B.R. 496 |
| Parties | In re Russell Lee COOK, Formerly doing business as RWCK, LLC, Formerly doing business as RWCK Developments, LLC, Formerly doing business as Russell Cook Construction, LLC, Formerly doing business as RWCK Construction, LLC, Formerly doing business as RWCK Quarry, LLC, Formerly doing business as High Mountain Whitetails, LLC, Formerly doing business as Tuscany on the Lakes, LLC, Formerly doing business as The TanStone Group, LLC, Formerly doing business as Cook–Patch Partn, Formerly doing business as Gobblers Nob RE, LLC, Formerly doing business as Table Rock Properties, LLC; Wanda Faye Cook, Formerly doing business as RWCK, LLC, Formerly doing business as RWCK Developments, LLC, Formerly doing business as Russell Cook Construction, LLC, Formerly doing business as RWCK Construction, LLC, Formerly doing business as RWCK Quarry, LLC, Formerly doing business as High Mountain Whitetails, LLC, Formerly doing business as Tuscany on the Lakes, LLC, Formerly doing business as The TanStone Group, LLC, Formerly doing business as Cook–Patch Partn, Formerly doing business as Gobblers Nob RE, LLC, Formerly doing business as Table Rock Properties, LLC, Debtors. Arvest Bank, Plaintiff–Appellee v. Russell Lee Cook; Wanda Faye Cook; Russell Lee Cook, as Trustee of the Russell L. Cook Revocable Trust; Wanda Faye Cook, as Trustee of the Wanda F. Cook Revocable Trust, Defendants Empire Bank, Defendant–Appellant. Russell Lee Cook; Wanda Faye Cook, Cross Claimants–Appellees v. Empire Bank, Cross Defendant–Appellant. |
| Court | U.S. Bankruptcy Appellate Panel, Eighth Circuit |
OPINION TEXT STARTS HERE
Richard Lane Schnake, argued, Springfield, MO (Richard Lane Schnake, on the brief), for appellant.
David Clay Britton, III, argued, Kansas City, MO (Britton, Dan Nelson, Springfield, MO, on the brief), for appellee.
Raymond Irwin Plaster, argued, Springfield, MO, for appellees.
Before SALADINO, NAIL and SHODEEN, Bankruptcy Judges.
Empire Bank appeals from a March 14, 2013, order and judgment of the bankruptcy court declaring that Arvest Bank's judicial lien is superior to the liens asserted by Empire Bank and directing judgment in favor of Debtors, Russell L. and Wanda F. Cook, on their preferential transfer claim against Empire Bank. We have jurisdiction over this appeal from the final order of the bankruptcy court. See28 U.S.C. § 158(b). For the reasons set forth below, we reverse and remand for further proceedings in the bankruptcy court.
The pertinent facts are uncontroverted and many are set forth in a stipulation filed with the bankruptcy court. In short, this is a dispute between Empire Bank 1 and Arvest Bank over the priority of their liens on property owned by Mr. and Mrs. Cook.2 Mr. and Mrs. Cook were engaged in the business of real estate development and condominium construction, and owned interests in various entities, including RWCK, LLC (“RWCK”) and Table Rock Properties, LLC (“Table Rock”). Together with their entities, Mr. and Mrs. Cook had lending relationships with both Empire Bank and Arvest Bank.
At all relevant times, Mr. and Mrs. Cook owned real property located in Taney County, Missouri, consisting of 809.19 acres, more or less. They also owned a smaller three acre parcel in the same county. On June 19, 2007, Mr. and Mrs. Cook, along with RWCK and other entities, each executed and delivered a guaranty to Empire Bank, under the terms of which they guaranteed to Empire Bank the payment and performance of each and every debt, liability, and obligation of every type and description which Table Rock may owe to Empire Bank. Each guaranty states that it is unsecured.
On or about August 30, 2007, Table Rock executed a $315,000.00 promissory note in favor of Empire Bank, which note was secured by a deed of trust recorded in Greene County, Missouri. On November 8, 2007, Table Rock executed a promissory note in favor of Empire Bank in the amount of $4,200,000.00, which note was also secured by a deed of trust recorded in Greene County, Missouri. Table Rock defaulted on its promissory notes, and Empire Bank foreclosed on both of the Table Rock deeds of trust. Empire Bank then sued each of the guarantors for deficiency judgments on both of the Table Rock notes. The Greene County litigation resulted in a confession of judgment executed by Table Rock, RWCK, and Mr. and Mrs. Cook on September 9, 2011. Empire Bank filed that confession of judgment in the circuit clerk's office in Taney County even though it had not yet been entered as a judgment signed by a judge. On February 14, 2012, the Greene County Circuit Court accepted the confession and entered a signed judgment for Empire Bank against Table Rock, RWCK, and Mr. and Mrs. Cook in the amount of $886,552.64 on Count I and $37,677.36 on Count II, plus interest. A copy of the Greene County judgment was filed in Taney County on February 16, 2012.
After recording its Greene County judgment in Taney County, Empire Bank began efforts to execute on its judgment against Mr. and Mrs. Cook's real estate in Taney County. Before selling the property upon execution, Empire Bank reached a settlement with Mr. and Mrs. Cook. On May 19, 2012, in full satisfaction of its judgment, Empire Bank received from Mr. and Mrs. Cook an assignment of two promissory notes receivable held by them, one having a value of $517,200.17 and the other having a value of $617,533.45.
In the meantime, on April 14, 2010, Arvest Bank commenced a proceeding in the Circuit Court of Taney County, Missouri, against Mr. and Mrs. Cook and various other individuals and entities, including RWCK, for liability on certain promissory notes and guaranty agreements. On December 6, 2011, the Circuit Court of Taney County entered judgment in favor of Arvest Bank against Mr. and Mrs. Cook, RWCK, and others in the amount of $5,256,296.27, plus interest and attorney fees.
Empire Bank is the lender/grantee of a deed of trust granted by Mr. and Mrs. Cook dated October 11, 2007, and recorded on October 16, 2007, in Taney County, Missouri. The deed of trust encumbers approximately 120 acres which are part of the 809.19 acre parcel owned by Mr. and Mrs. Cook in Taney County, Missouri. Among other provisions, the deed of trust provides as follows:
—Paragraph 2 states that the deed of trust is given “for good and valuable consideration, the receipt and sufficiency of which is acknowledged, and to secure the Secured Debt (defined below)....”
—Paragraph 3 states that the total principal amount secured “shall not exceed $375,000.00.”
—Paragraph 4 defines the term “Secured Debt” as follows:
A. Debt incurred under the terms of all promissory note(s), contract(s), guaranty(ies) or other evidence of debt described below and all their extensions, renewals, modifications or substitutions. (When referencing the debts below it is suggested that you include items such as borrowers' names, note amounts, interest rates, maturity dates, etc.). NOTE DATED 10–11–2007 IN THE PRINCIPAL AMOUNT OF $375,000.00 EXECUTED BY RWCK, LLC
[x] Line of Credit. The Secured Debt includes a revolving line of credit provision. Although the Secured Debt may be reduced to a zero balance, this Security Instrument will remain in effect until released.
...
B. All future advances from Lender to Grantor 3 or other future obligations of Grantor to Lender under any promissory note, contract, guaranty, or other evidence of debt existing now or executed after this Security Instrument whether or not this Security Instrument is specifically referenced.... All future advances and other future obligations are secured by this Security Instrument even though all or part may not yet be advanced. All future advances and other future obligations are secured as if made on the date of this Security Instrument....
C. All obligations Grantor owes to Lender, which now exist or may later arise, to the extent not prohibited by law, including, but not limited to, liabilities for overdrafts relating to any deposit account agreement between Grantor and lender.
... This Security Instrument will not secure any other debt if Lender fails to give any required notice of the right of rescission.
Despite the reference in the deed of trust to a “NOTE DATED 10–11–2007 IN THE PRINCIPAL AMOUNT OF $375,000.00 EXECUTED BY RWCK, LLC[,]” neither the original nor an executed copy of such a note was offered as evidence. An unexecuted copy of the note and an unexecuted copy of a line of credit agreement were received into evidence.
On March 30, 2012, Arvest Bank filed a petition for declaratory judgment in Taney County, Missouri, against Empire Bank and Mr. and Mrs. Cook. Arvest Bank asserted that “the Empire Deed of Trust is not supported by valid consideration or any existing indebtedness and, therefore, is a nullity, void and of no effect whatsoever.” Arvest Bank also asserted that its judgment lien is prior and superior to Empire Bank's judgment lien as against the real property owned by Mr. and Mrs. Cook in Taney County. Empire Bank and Mr. and Mrs. Cook both filed answers to the petition for declaratory judgment.
On July 12, 2012, Mr. and Mrs. Cook filed their voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Western District of Missouri. They subsequently removed Arvest Bank's declaratory judgment action from the Circuit Court of Taney County, Missouri, to the United States Bankruptcy Court for the Western District of Missouri. Mr. and Mrs. Cook obtained leave of the bankruptcy court to file a cross-complaint against Empire Bank to set aside as a preferential transfer their pre-petition settlement with Empire Bank involving the transfer of two promissory notes receivable. As part of that filing, Mr. and Mrs....
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