Doeling v. O'Neill (In re O'Neill)

• Decision Date: 19 April 2016
• Docket Number: Adversary No.: 15–07005,Bankruptcy No.: 14–30569
• Parties: In re: Roger K. O'Neill, Debtor, Gene W. Doeling, Trustee, Plaintiff, v. Theresa C. O'Neill, Defendant.
• Court: United States Bankruptcy Courts. Eighth Circuit. U.S. Bankruptcy Court — District of North Dakota

550 B.R. 482

In re: Roger K. O'Neill, DebtorGene W. Doeling, Trustee, Plaintiff

v.Theresa C. O'Neill, Defendant.

Bankruptcy No.: 14–30569

Adversary No.: 15–07005

United States Bankruptcy Court, D. North Dakota.

Signed April 19, 2016

Gene W. Doeling, Kaler Doeling Law Office, Fargo, ND, for Plaintiff.

Aaron W. Nicholson, Crowley Fleck PLLP, Bismarck, ND, for Defendant.

MEMORANDUM AND ORDER

SHON HASTINGS

, UNITED STATES BANKRUPTCY JUDGE

I. INTRODUCTION

Chapter 7 Trustee Gene W. Doeling filed an adversary complaint seeking to avoid prepetition transfers from Debtor Roger K. O'Neill to Defendant Theresa C. O'Neill. Specifically, the Trustee asserts Debtor's real estate transfers to Defendant pursuant to their divorce Settlement Agreement were preferential and fraudulent under 11 U.S.C. §§ 547

and 548(a)(1). Defendant denies the allegations.

This adversary action is a core proceeding under 28 U.S.C. § 157(b)(2)(H)

. The Court has jurisdiction in this matter under 28 U.S.C. §§ 1334 and 157. This opinion constitutes findings of fact and conclusions of law in accordance with Federal Rule of Bankruptcy Procedure 7052.

II. FACTS

Debtor and Defendant married on June 28, 1985. In 1988, they purchased a house in Mandan, North Dakota, for $25,000. Defendant's parents gave the couple $5,000, which they used for a down payment on the house. To finance the remaining balance, Defendant and Debtor signed a promissory note for $20,750 and granted a mortgage to Gate City Federal Savings Bank on October 20, 1988. Defendant paid this debt in full in 2004. All five of the couple's children were raised in this home, and Defendant continues to live there. The house has not been updated since Debtor and Defendant purchased it in 1988. It is in need of significant repairs, including new insulation, roofing, windows and siding, totaling approximately $45,000 to $50,000 in renovation expenses. According to Defendant, who obtained an estimate, it will cost $14,000 to repair the roof alone. A 2014 Morton County Real Estate Tax Statement shows the tax-assessed value of the house was $102,500 in 2012, $135,000 in 2013 and $139,800 in 2014.

Debtor worked as a truck driver from 1991 to fall 2011 or spring 2012. In 1994, he opened his own trucking business, Roger O'Neill Trucking. Debtor travelled a great deal, sometimes for months at a time. During their marriage, Defendant worked as a registered nurse and assumed nearly all of the household duties and parenting responsibilities for their five children. Debtor rarely contributed to the day-to-day maintenance of the home or the parenting of the children. When he was home, Debtor described himself as one who “drank like a pig and fought like an animal,” reflective of his sentiment that he “never grew up.”

Defendant earned wages and benefits through her job as a registered nurse. She handled all the family finances and paid all credit card and home expense bills. She also managed Debtor's personal finances and helped him manage his business, including finances, taxes and operations. Defendant claimed he was not capable of managing his finances on his own. Debtor paid her no consideration for her services to his business.

While married, Debtor and Defendant kept separate bank accounts. Debtor initially opened a personal checking account at Gate City Bank that was also in Defendant's name. With Defendant's help, Debtor eventually converted the account to a business account for Roger O'Neill Trucking. Debtor did not remove Defendant's name from the account after he converted it to a business account. She had access to Debtor's account even after the couple separated. Gate City Bank stopped sending statements to Defendant roughly a year before they divorced. Debtor deposited all his trucking and personal income into his Gate City Bank account and withdrew money from the account with a debit card for his personal expenses and some of his business expenses. Before they separated, Defendant paid Debtor's trucking expenses with funds from Debtor's bank account. Defendant paid most of the household bills with funds from her bank account but paid some from Debtor's account.

Debtor and Defendant opened credit card accounts with Chase, Sears and Discover to pay for household and trucking expenses. Although both of them used credit cards, they used the Chase and Sears cards for Debtor's business expenses, including diesel fuel and repairs when he hauled goods. Neither Defendant nor Debtor used the Discover card often. Defendant used it when she visited her daughter once or twice a year, and Debtor used it only for diesel fuel on a few occasions.

To consolidate their numerous monthly payments (including credit card debt), the purchase of a new truck for Debtor's business and ongoing diesel fuel costs, Defendant and Debtor borrowed $106,400 on December 8, 2006, and granted a mortgage on their home. Debtor did not contribute any payments to this debt; rather, Defendant made every payment with funds from her account since the origination of the loan.

Debtor inherited assets on two occasions during the marriage. After Debtor's brother died in 2007, Debtor received $30,000 in cash which was deposited into Debtor's bank account. Defendant did not use Debtor's inheritance for personal expenses; Debtor spent all or most of the money. The loss of his brother was traumatic for Debtor. Debtor testified that he squandered this inheritance—he simply “drank it all up,” spending up to $1,000 a day on drinking and gambling. Defendant testified that she noticed Debtor's car at the bar three to four times a week after his brother's death.

Debtor also received an inheritance from his aunt's estate in 2008, consisting of $120,000 in cash and 330 acres of pastureland in Morton County, North Dakota. Again, the money was deposited into Debtor's bank account, and Defendant did not use any of this inheritance for her personal expenses. Debtor lost about half of the money “in the stock market” and “drank [ ] up” the rest. The land “became tied up” in a lawsuit between Debtor, his brother Kevin and his cousin Linda Gerhardt. After the lawsuit, the pastureland was divided. Linda and George Gerhardt received 80 acres and Debtor and his brother received 250 acres in undivided interests.¹ The Gerhardts conveyed 250 acres of pastureland to Debtor and his brother on March 12, 2012. After this conveyance, he owned the following parcel of real estate as tenants in common with Kevin O'Neill (“pastureland”):

Township 135, Range 79

Section 7: SE1/4, S1/2 NE1/4

Section 8: SW1/4, S1/2 NW1/4, S1/2 SE1/4

And W1/2 NW1/4 SE1/4

This pastureland is a parcel surrounded by other parcels owned by Debtor's family. The soil consists of gumbo and rock. Two reservoirs are the only source of water for livestock. Debtor did not know what the pastureland is worth, but suggested that it was not worth much because it could only sustain six cow/calf pairs. He has never received any rental payments from the pastureland and claimed that the O'Neills' neighbors would probably not buy the property if it was offered for sale.

The Trustee hired an appraiser to estimate the retroactive value of the land as of November 13, 2013. The appraiser assessed the value of the pastureland in 2013 based on a 580–acre parcel of land previously owned in whole by the O'Neill family that included the parcel Debtor inherited. She concluded that the value of the 580–acre parcel in 2013 was $642,000 or $1,106.90 per acre. Next, she subtracted the value of 330 acres in which Debtor did not have an interest and estimated that the 250 acres owned by Debtor and his brother was worth $276,724.14. She divided this figure by two and concluded that Debtor's undivided one-half interest was worth $138,362.07 on November 13, 2013.

In reaching this conclusion, she considered five land sales in Morton County from 2012 to 2013, where the buyer paid between $550 and $1,650 per acre. The description of the purported comparable sales included land types, accessibility, water source and location different from the parcel Debtor inherited, raising questions about whether the parcels were genuinely comparable.

Further, the appraiser did not analyze the specific 250 acres in which Debtor held an interest and did not estimate the value based on characteristics unique to this parcel. She acknowledged that the parcel at issue is surrounded by land owned by the O'Neill family and that a third-party buyer would have to erect a fence to use the parcel as pastureland. She observed several other deficiencies including a developing prairie dog town and leafy spurge growth. She offered no testimony disputing Debtor's characterization of the land as gumbo. Rather than evaluating these factors and adjusting her estimated value accordingly, she simply testified that she did not know the value of the 250 acres at issue.

In challenging the credibility of the appraisal, Defendant offered a North Dakota Department of Trust Lands March 2013 publication, “2013 County Rents and Values North Dakota.” That publication listed the per-acre value for “2013 Non–Irrigated Pastureland,” similar to Debtor's pastureland in Morton County between $625 and $699 per acre. The publication also shows eight counties in which the average per-acre value is between $1,000 and $1,763, but all of these counties are east of Morton County and many of them are located in the Red River Valley, far from Morton County.

Additionally, the appraiser retained by the Trustee did not apply a discount to the value of Debtor's undivided one-half interest in the property. She acknowledged that a partial interest in land can be less valuable than a fee simple interest but testified that partial interests are difficult to appraise. Rather than analyzing the issue, it is her practice to allow the parties to reach a discounted price on their own through negotiations. Consequently, she determined the value of Debtor's interest by calculating the full value of the 580 acres, subtracting the value...