Graven, In re

• Decision Date: 25 June 1991
• Docket Number: No. 90-1682,90-1682
• Citation: 936 F.2d 378
• Parties: , 24 Collier Bankr.Cas.2d 2006, 21 Bankr.Ct.Dec. 1376, Bankr. L. Rep. P 74,034 In re Bobby N. GRAVEN, Bobby F. Graven, Personal Representative for the Estate of Millie Ann Graven, Deceased, Debtors. Bobby N. GRAVEN, Bobby F. Graven, Personal Representative for the Estate of Millie Ann Graven, Deceased, Appellants, v. Richard V. FINK, Trustee, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 378

936 F.2d 378

60 USLW 2018, 24 Collier Bankr.Cas.2d 2006,

21 Bankr.Ct.Dec. 1376, Bankr. L. Rep. P 74,034

In re Bobby N. GRAVEN, Bobby F. Graven, Personal Representative for the Estate of Millie Ann Graven, Deceased, DebtorsBobby N. GRAVEN, Bobby F. Graven, Personal Representative for the Estate of Millie Ann Graven, Deceased, Appellants, v.Richard V. FINK, Trustee, Appellee.

No. 90-1682.

United States Court of Appeals Eighth Circuit.

Submitted Nov. 16, 1990.

Decided June 25, 1991.

James R. Doran, Springfield, Mo., for appellants.

Thomas J. O'Neal, Springfield, Mo., for appellee.

Before McMILLIAN and JOHN R. GIBSON, Circuit Judges, and HARRIS, ^*Senior District Judge.

JOHN R. GIBSON, Circuit Judge.

Bobby Noah Graven and Bobby F. Graven, personal representative for the estate of Millie Ann Graven, Bobby Noah's deceased wife, appeal from the district court's ¹ affirmance of a bankruptcy court order granting the trustee's motion under 11 U.S.C. Sec. 1208(d)(1988) to convert the Gravens' Chapter 12 proceeding to Chapter 7, based on a finding of fraud, despite the Gravens' motion to dismiss the case under 11 U.S.C. Sec. 1208(b)(1988).On appeal the Gravens ² argue that: 1) 11 U.S.C. Sec. 1208(b) creates a right to immediate dismissal of Chapter 12 proceedings upon motion by the debtor; 2) the involuntary conversion to Chapter 7 was improper; 3) the bankruptcy court improperly based its determination of fraud upon the trustee's reports rather than on evidence submitted to that court; and 4) the bankruptcy court failed to make the specific findings necessary to support its ultimate finding of fraud.We are thus presented with an issue of first impression, which is whether under 11 U.S.C. Sec. 1208(d), a court may involuntarily convert a Chapter 12 case to Chapter 7 despite the debtor's request for voluntary dismissal under 11 U.S.C. Sec. 1208(b).We affirm the district court's judgment affirming the bankruptcy court's order to convert the proceedings to Chapter 7.

Before seeking Chapter 12 protection, Bobby N. and Millie Graven had transferred extensive holdings in real and personal property to a family-controlled corporation.Bobby N. later transferred the corporation's stock to a family trust.In September 1984, prior to these transfers, the Gravens had claimed a net worth of approximately $1.5 million in a financial statement filed with a bank.In addition to extensive assets in real estate and farm equipment, the Gravens had also accumulated significant debts.When they filed under Chapter 12 in November 1987, they stated that they owed $225,935.84 to unsecured creditors; most of this debt was incurred between 1980 and 1985.In January 1985, the Pillsbury Company obtained a judgment against the Gravens, increasing their debt by $14,871.44.

In that same month, January 1985, Bobby N. Graven incorporated the Graven Auction Co., Inc.He was its president, its sole shareholder, and one of its two directors.³On January 16, 1985, the same date that the State of Missouri issued a certificate of incorporation to Graven Auction, Bobby N. executed a series of deeds conveying his interest in several tracts of real estate to Graven Auction.These conveyances were recorded within 30 days.⁴

In January 1986, Millie Graven executed quit claim deeds purporting to convey her interest in the same tracts.⁵Some of these deeds were recorded in February 1986, but others were not recorded until February 1987.Graven Auction paid no monetary consideration to either of the Gravens for the real estate, despite the fact that in January 1985, the Gravens owed approximately $500,000 to creditors.

In January 1986, Bobby N. Graven executed a quit claim deed transferring another tract of real estate to Graven Auction.That same month, Bobby N. and Millie Graven executed a bill of sale conveying all of their livestock (including 169 head of dairy cattle) and farm equipment except for a feed mill to Graven Auction.Graven Auction paid no consideration for this property, and it later leased the livestock and equipment back to Bobby N. Graven at favorable rates that were later reduced.Bobby N. acted as both the lessee and as president of the lessor corporation.The bankruptcy court found that between January 1986 and March 1988, the debtors were in full control and possession of the property.In re Graven, 101 B.R. at 110.During a Rule 2004 examination in December 1988, Bobby N. Graven stated that the lease with Graven Auction had been terminated the month before.The termination was without the permission of the bankruptcy court, and the location of the property is now unclear.

Also in January 1986, Bobby N. Graven transferred for no consideration all outstanding shares of stock in Graven Auction, and all but three of the 285 shares of stock in Graven Realty, another corporation that he controlled, to an irrevocable family trust.He retained the voting rights to the stock during his lifetime.The trust document named one of the Gravens' sons, Bobby F. Graven, as trustee, and named all three Graven children, Bobby F., Daniell N. and Gayla A. Graven, as beneficiaries.

On November 15, 1986, Bobby N. and Millie Graven executed a quit claim deed, which was recorded four days later, conveying their interest in another tract of land to Graven Auction.Several days earlier, on November 10, Bobby N. Graven had executed a quit claim deed conveying to Graven Auction his interest in the surface estate of a tract in LeFlore County, Oklahoma.That deed was not recorded until November 10, 1987.Two days later, on November 12, 1987, Bobby N. and Millie Graven filed their Chapter 12 bankruptcy petition.On November 17, 1987, five days after the Chapter 12 filing, Bobby N. Graven executed a quit claim deed conveying to Graven Auction his interest in the mineral rights in the Oklahoma property.That deed was recorded on November 20, 1987.

Bobby N. and Millie Graven had operated their farm on property called the "Manes Farm," seven hundred acres in Wright County, Missouri.Millie Graven claimed Manes Farm as her permanent residence, and Bobby N. has also claimed to reside there.Along with their other real estate, the Gravens had conveyed Manes Farm to Graven Auction, with Bobby N. first conveying his interest in various Manes Farm tracts and Millie Graven later purporting to transfer her interest by separate deeds.⁶Graven Auction later conveyed Manes Farm back to Bobby N. Graven through a series of quit claim deeds that bore January 1986 execution dates but were not recorded until November 10, 1987, two days before the bankruptcy filing.

Following all of these transfers, the only property owned by Bobby N. and Millie Graven was the Manes Farm and the feed system.In their Chapter 12 filing, the Gravens listed debts of $527,437.72 and assets of $202,514.22.

In January 1988, the Gravens filed a plan of reorganization.The Federal Lank Bank of St. Louis, a secured creditor, objected to the plan and, along with another creditor, requested that the bankruptcy court order the trustee to investigate the Gravens' actions.In a February 1988 motion, the Federal Land Bank alleged that the Gravens' transfers to closely-held corporations and the family trust may have been fraudulent and therefore voidable.On March 23, 1988, following an evidentiary hearing earlier that month, the bankruptcy court ordered the trustee to investigate the possibility that the Gravens had committed fraud under the bankruptcy code or Missouri law.In re Graven, 84 B.R. 630, 631-32(Bankr.W.D.Mo.1988).The trustee submitted a preliminary investigation report on November 18, 1988, and a supplemental preliminary report on January 20, 1989.The first report described in detail the Gravens' transactions and alleged that the debtors had transferred property with the intent to "hinder, delay and defraud" their creditors.The report recommended instituting proceedings to set aside the alleged fraudulent transfers.The second report provided information about more of the Gravens' transactions and sought to set aside those transfers as well.

At a January 24, 1989, hearing to consider the trustee's reports, the Gravens moved to dismiss their Chapter 12 proceedings under 11 U.S.C. Sec. 1208(b).The trustee subsequently filed a motion to convert the case to Chapter 7 based on the alleged fraud by the Gravens.Following a hearing on April 10, 1989, the bankruptcy court filed its order which held that the Gravens had engaged in a "clear pattern of deliberate fraud perpetrated with the intent to hinder, delay and defraud [their] creditors...."In re Graven, 101 B.R. at 111.Finding that the Gravens had engaged in both prepetition and postpetition misconduct, the bankruptcy court granted the trustee's motion for conversion under 11 U.S.C. Sec. 1208(d)(1988), which states that the court may dismiss a Chapter 12 case or convert it to Chapter 7 upon a showing that the debtor has committed fraud.Id. at 113.

The court further held that its decision rendered the Gravens' motion to dismiss moot.Id.It rejected the Gravens' argument that section 1208(b) mandates immediate dismissal upon request of the debtor.The court held that it may convert a case to Chapter 7 despite the debtor's petition for dismissal if fraud is established and "the public good requires" conversion.Id. at 112-13.

Reviewing de novo the bankruptcy court's ultimate finding of fraud, the district court affirmed that finding based on the presence of numerous "badges of fraud."Graven v. Fink, No. 89-3587-CV-S-2, slip op. at 7-10(W.D.Mo.March 29, 1990).The district court particularly noted the transfers of property for little or no consideration occurring when the Gravens owed approximately $500,000 to creditors, the Gravens' possession and use of the property following the transfers, the misrepresentations in the statements the Gravens submitted to the bankruptcy court, and the transfer of the mineral...