Chatz v. Alice Rhoads Living Trust Dated June 1, 2012 & Alice Rhoads (In re Rhoads)

• Decision Date: 08 September 2017
• Docket Number: Adversary No. 15ap00819,Case No. 14bk17886
• Parties: IN RE: Gurrie C. RHOADS, Debtor. Barry A. Chatz, not individually but solely as but as Chapter 7 Trustee of the Estate of Gurrie C. Rhoads, Plaintiff, v. Alice Rhoads Living Trust Dated June 1, 2012 and Alice Rhoads, Defendants.
• Court: United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Northern District of Illinois

572 B.R. 905

IN RE: Gurrie C. RHOADS, Debtor.Barry A. Chatz, not individually but solely as but as Chapter 7 Trustee of the Estate of Gurrie C. Rhoads, Plaintiff,

v.Alice Rhoads Living Trust Dated June 1, 2012 and Alice Rhoads, Defendants.

Case No. 14bk17886

Adversary No. 15ap00819

United States Bankruptcy Court, N.D. Illinois, Eastern Division.

Signed September 8, 2017

Attorneys for Plaintiff: Gregory K. Stern, Monica C. O'Brien and Rachel S. Sandler, Gregory K. Stern, P.C., Chicago, IL

Attorney for Defendants: David P. Lloyd, David P. Lloyd, Ltd., LaGrange, IL

MEMORANDUM DECISION ¹

TIMOTHY A. BARNES, Judge

This matter comes before the court on the Complaint To Avoid Fraudulent Transfer Pursuant to the Illinois Fraudulent Transfer Act, Recover Damages and Authorize the Sale of the Creek Drive Property Pursuant to 11 U.S.C. § 363(h) [Adv. Dkt. No. 1]² (the "Complaint") filed by Barry A. Chatz (the "Trustee"), not individually but as the Chapter 7 Trustee for the Estate of Gurrie C. Rhoads (the "Debtor"), in the above-captioned adversary proceeding against Alice Rhoads Living Trust Dated June 1, 2012 (the "Trust") and Alice Rhoads ("Mrs. Rhoads" and together with the Trust, the "Defendants") seeking to avoid a transfer of the Debtor's home to the Trust, recover damages and authorize the sale of the home under section 363(h) of title 11 of the United States Code (the "Bankruptcy Code").

Under Count III of the Complaint,³ the Trustee seeks to sell pursuant to section 363(h) certain real property commonly known as 4815 Creek Drive, Western Springs, Illinois (the "Creek Drive Property"). On February 21, 2017, the court conducted a trial (the "Trial") on Count III, the only remaining Count under the Complaint after the parties' Stipulation.

At the conclusion of the Trial, post-trial briefing was ordered on the issues discussed below. After post-trial hearings on May 3, 2017 and June 28, 2017, the matter was concluded and judgment taken under advisement. This Memorandum Decision constitutes the court's ruling on all matters under advisement.

JURISDICTION

The federal district courts have "original and exclusive jurisdiction" of all cases under the Bankruptcy Code. 28 U.S.C. § 1334(a). The federal district courts also have "original but not exclusive jurisdiction" of all civil proceedings arising under the Bankruptcy Code, or arising in or related to cases under the Bankruptcy Code. 28 U.S.C. § 1334(b). District courts may, however, refer these cases to the bankruptcy judges for their districts. 28 U.S.C. § 157(a). In accordance with section 157(a), the District Court for the Northern District of Illinois has referred all of its bankruptcy cases to the Bankruptcy Court for the Northern District of Illinois. N.D. Ill. Internal Operating Procedure 15(a).

A bankruptcy judge to whom a case has been referred may enter final judgment on any proceeding arising under the Bankruptcy Code or arising in a case under the Bankruptcy Code. 28 U.S.C. § 157(b)(1). An adversary proceeding to sell bankruptcy estate property is a core proceeding pursuant to 28 U.S.C. §§ 157(b)(2)(A), (N) and (O). Further, according to the Defendants' Answer and Affirmative Defense [Adv. Dkt. No. 12] (the "Answer") and the Trustee's Compliant, the parties agree that this court has jurisdiction over this adversary proceeding. See e.g. , Wellness Int'l Network, Ltd. v. Sharif , –––U.S. ––––, 135 S.Ct. 1932, 1939, 191 L.Ed.2d 911 (2015) (parties may consent to a bankruptcy court's jurisdiction).

PROCEDURAL HISTORY AND EVIDENTIARY RULINGS

In considering the relief sought by the Trustee, the court has considered the evidence and argument presented by the parties at the Trial, has reviewed the Complaint, admitted Exhibits 1–15, and has reviewed and found each of the following of particular relevance:

(1) The Complaint;

(2) The Answer;

(3) Answer to Affirmative Defenses [Adv. Dkt. No. 20];

(4) Final Pretrial Order Governing Complaint to Avoid Fraudulent Transfer Pursuant to the Illinois Fraudulent Transfer Act, Recover Damages and Authorize the Sale of the Creek Drive Property Pursuant to 11 U.S.C. § 363(h) [Adv. Dkt. No. 48] (the "Final Pretrial Order");

(5) The Stipulation;

(6) Joint Pretrial Statement [Adv. Dkt. No. 53];

(7) Chapter 7 Trustee's Trial Brief in Support of Sale of the Creek Drive Property Pursuant to 11 U.S.C. § 363(h) [Adv. Dkt No. 62] (the "Trustee's Post–Trial Brief");

(8) Defendants' Trial Brief [Adv. Dkt. No. 64];

(9) Chapter 7 Trustee's Reply Trial Brief in Support of Sale of the Creek Drive Property Pursuant to 11 U.S.C. § 363(h) [Adv. Dkt. No. 65];

(10) Order [Scheduling Debtor's Statement regarding section 363(h)(2) ] [Adv. Dkt. No. 68] (the "Post–Trial Scheduling Order");

(11) Defendants' Statement of Issues, Evidence, and Witnesses [Adv. Dkt. No. 69] (the "Statement");

(12) Transcript of May 3, 2017, Status Hearing [Adv. Dkt. No. 70];

(13) Chapter 7 Trustee's Objection to Defendants' Statement of Issues, Evidence and Witnesses [Adv. Dkt. No. 71]; and

(14) Defendants' Response to Plaintiff's [Trustee's] Objection [Adv. Dkt. No. 73].

The court has also taken into consideration any and all exhibits submitted in conjunction with the foregoing. Though the above items do not constitute an exhaustive list of the filings in the Adversary, the court has taken judicial notice of the contents of the docket in the Adversary and in the underlying Bankruptcy Case. See Levine v. Egidi , Case No. 93C188, 1993 WL 69146, at *2 (N.D. Ill. Mar. 8, 1993) (authorizing a bankruptcy court to take judicial notice of its own docket); In re Brent , 458 B.R. 444, 455 n.5 (Bankr. N.D. Ill. 2011) (Goldgar, J.) (recognizing same).

FINDINGS OF FACT

In consideration of the foregoing and the testimony presented at Trial and in addition to the court's findings made throughout this Memorandum Decision, the court specifically finds the following facts:

(1) On May 12, 2014, the Debtor filed a Voluntary Petition under chapter 11 of the Bankruptcy Code. [Dkt. No. 1]

(2) On May 12, 2015, the Debtor's chapter 11 case was converted to a case under chapter 7. [Dkt. No. 147]

(3) Following conversion, Barry A. Chatz was appointed as the Trustee on July 8, 2015. [Adv. Dkt. No. 53]

(4) On November 5, 2015, the Trustee commenced this Adversary. [Adv. Dkt. No. 1]

(5) On January 11, 2016, the Defendants filed their Answer and Affirmative Defense. [Adv. Dkt. No. 12]

(6) On February 6, 2017, the parties filed the Stipulation, conditionally resolving Counts I and II of the Complaint. [Adv. Dkt. No. 52]

(7) Mrs. Rhoads and the Debtor purchased the Creek Drive Property in 1994 for approximately $340,164.00. [Pl.'s Ex. 5, at 10]

(8) The Trust is the owner of all legal and equitable interests in the Creek Drive Property. [Adv. Dkt. No. 52, at ¶ 1]

(9) Mrs. Rhoads and the Debtor each hold a 50% beneficiary interest in the Trust. [Adv. Dkt. No. 52, at ¶¶ 2, 3]

(10) The Debtor's 50% interest in the Trust is property of the bankruptcy estate pursuant to section 541 of the Bankruptcy Code. [Adv. Dkt. No. 53, at ¶ 6]

(11) Mrs. Rhoads and the Debtor currently reside at the Creek Drive Property. [Adv. Dkt. No. 53, at ¶ 7]

(12) Mrs. Rhoads receives social security income in the amount of $1,507.00 each month. [Adv. Dkt. No. 53, at ¶ 15]. She earns approximately $660.00 each month for services she provides to the Debtor's businesses. [Adv. Dkt. No. 61]; Tr. 22–23, Feb. 21, 2017 [Adv. Dkt. No. 61]

(13) The approximate fair market value of the Creek Drive Property is between $413,000.00 and $430,000.00. [Adv. Dkt. No. 53, at ¶ 10]

(14) Partitioning the Creek Drive Property in kind is impracticable. [Adv. Dkt. No. 12, at ¶ 29]

(15) The Defendant admits that "the sale of one-half of the Creek Drive Property would yield less than the sale of the entire property; in fact, probably no more than one-half as much." [Pl.'s Ex. 4, at ¶ 15] ("Admission 15")⁴

(16) The Creek Drive Property is not used in the used in the production, transmission, or distribution, for sale, of electric energy or of natural synthetic gas for heat, light, or power. [Adv. Dkt. No. 64, at 4–5]

THE TRIAL

At Trial, the Trustee presented his case-in-chief, in which he offered into evidence fifteen exhibits⁵ and the testimony of two witnesses—a licensed real estate broker and Mrs. Rhoads. The Defendants, in turn, relied solely on the Trustee's exhibits and the testimony of two witnesses—Mrs. Rhoads and the Debtor. Neither party presented expert testimony on the value of the Creek Drive Property. The Trustee offered no evidence regarding his efforts to sell the estate's undivided one-half interest.

As to the Trustee's two witnesses, the Trustee first examined Brad Thompson, a licensed real estate broker. Though Mr. Thompson had not been retained by the Trustee to sell the Creek Drive Property and was not offered as an expert, he had inspected the Creek Drive Property. Mr. Thompson testified regarding the Creek Drive Property, describing it as an average condition two-story townhome with three-bedrooms and two baths. He speculated that the property would list for $449,000.00 and that it would sell for between $415,000.00 and $430,000.00. The Defendants did not cross-examine Mr. Thompson or object to the admissibility of his testimony.

Next, the Trustee directly examined Mrs. Rhoads. She testified that she and her husband, the Debtor, currently reside at the Creek Drive Property. In addition to using the property as their residence, Mrs. Rhoads testified that the Debtor and Mrs. Rhoads used the property for family gatherings and for business. She stated that while she did not agree with the Trustee that the property should be sold, she did not oppose the sale if the court ordered it.

Mrs. Rhoads stated that she and the Debtor purchased the Creek Drive Property for approximately $340,000.00 in 1994 from the Debtor's development company Common Wealth Avenue Venture. To finance the purchase, she sold her prior home and used the proceeds as a down payment. Mrs. Rhoads also testified that was...