Henderson v. Howse (In re Howse)

• Decision Date: 12 July 2021
• Docket Number: ADV. PROC. NO. 19-06034-KMS,CASE NO. 17-51655-KMS
• Parties: IN RE: BENJAMIN T. HOWSE DEBTOR DEREK A. HENDERSON, Trustee for the bankruptcy estate of Benjamin T. Howse PLAINTIFF v. LAURA C. HOWSE DEFENDANT
• Court: United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Southern District of Mississippi

IN RE: BENJAMIN T. HOWSE DEBTORDEREK A. HENDERSON,Trustee for the bankruptcy estate of Benjamin T. Howse PLAINTIFF v. LAURA C. HOWSE DEFENDANT

CASE NO. 17-51655-KMS

ADV. PROC. NO. 19-06034-KMS

UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF MISSISSIPPI

July 12, 2021

The Order of the Court is set forth below. The docket reflects the date entered.

CHAPTER 7

OPINION AND ORDER ON CROSS-MOTIONS FOR SUMMARY JUDGMENT

This matter is before the Court on cross-motions for summary judgment on a complaint to set aside alleged fraudulent transfers: Defendant's Motion for Summary Judgment, ECF No. 26, by Laura C. Howse, non-debtor wife of Debtor Benjamin T. Howse ("Wife"), with Response in opposition, ECF No. 31, by Plaintiff Chapter 7 Trustee Derek A. Henderson; and Trustee's Counter Motion for Summary Judgment, ECF No. 34, with Response in opposition, ECF No. 39, by Wife. Count I of the Complaint seeks to set aside Debtor's alleged fraudulent transfer to Wife of Debtor's interest in the proceeds of the sale of the couple's home. Trustee brings this count under section 15-3-107 of Mississippi's Uniform Fraudulent Transfer Act (MUFTA), using his avoidance powers under § 544(b) of the Bankruptcy Code. Count II seeks to set aside several alleged fraudulent transfers made through checks Debtor wrote to Wife from the couple's joint bank account. Trustee brings this count under § 548 of the Bankruptcy Code. Count III seeks either turnover of the funds sought under Counts I and II or a monetary judgment under § 550 of the Bankruptcy Code.

As to Count I, Trustee has no cause of action under MUFTA. Consequently, summary judgment is granted in favor of Wife. As to Count II, neither party is entitled to summary judgment because neither party established the extent of Debtor's interest in the funds in the joint account.

I. Bankruptcy Court's Authority to Enter Summary Judgment

Bankruptcy judges have the authority to enter final orders and judgments in all proceedings that are within the bankruptcy court's core jurisdiction. 28 U.S.C. § 157(b)(1). In proceedings that are non-core, or "otherwise related to" the underlying bankruptcy case, bankruptcy judges may not enter final orders and judgments unless all parties consent. 28 U.S.C. § 157(c)(1)-(2); Wellness Int'l Network, Ltd. v. Sharif, 575 U.S 665, 671 (2015).

Here, all three counts are statutorily core as "proceedings to determine, avoid, or recover fraudulent conveyances," 28 U.S.C. § 157(b)(2)(H). But Count I is based on state fraudulent transfer law, and courts disagree on whether such a claim is therefore constitutionally non-core or whether it becomes core through § 544's invocation of a substantive right under the Bankruptcy Code. See Guffy v. Brown (In re Brown Med. Ctr., Inc.), 578 B.R. 590, 596-97 (Bankr. S.D. Tex. 2016) (surveying cases). That question need not be answered here, though, because both parties explicitly consented to the bankruptcy court's authority to enter final orders and judgment. See Wellness, 575 U.S. at 669 ("Article III is not violated when the parties knowingly and voluntarily consent to adjudication by a bankruptcy judge.").

II. Summary Judgment Standard

Summary judgment is appropriate "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a) (made applicable by Fed. R. Bankr. P. 7056). "A fact is 'material' if its resolution in favor of one party might affect the outcome of the lawsuit under governing law. An issue is 'genuine' if the evidence is sufficient for a reasonable [fact-finder] to return a verdict for the non-moving party." Ginsberg 1985 Real Estate P'ship v. Cadle Co., 39 F.3d 528, 531 (5th Cir. 1994) (citations omitted). A party asserting that a fact either is genuinely disputed or cannot be genuinely disputed must support the assertion by citations "to particular parts of materials in the record, including depositions, documents, electronically stored information, affidavits or declarations, stipulations (including those made for purposes of the motion only), admissions, interrogatory answers, or other materials." Fed. R. Civ. P. 56(c)(1)(A).

The moving party bears the initial responsibility of informing the court of the basis for its motion and the parts of the record that indicate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). "Once the moving party presents the . . . court with a properly supported summary judgment motion, the burden shifts to the nonmoving party to show that summary judgment is inappropriate." Morris v. Covan World Wide Moving, Inc., 144 F.3d 377, 380 (5th Cir. 1998). "The evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in his favor." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). But the nonmovant must meet its burden with more than "metaphysical doubt," "conclusory allegations," "unsubstantiated assertions," or a mere "scintilla" of evidence. Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994).

On cross-motions for summary judgment, each movant must establish the absence of a genuine issue of material fact and the movant's entitlement to judgment as a matter of law. Shaw Constructors v. ICF Kaiser Eng'rs, Inc., 395 F.3d 533, 538-39 (5th Cir. 2004). "If there is no genuine issue and one of the parties is entitled to prevail as a matter of law, the court may render summary judgment." Id. at 539.

III. Count I - Wife's Entitlement to Summary Judgment

A. Material Undisputed Facts

The following facts relate only to the alleged fraudulent transfer of proceeds from the sale of the couple's home. They are taken from the list of undisputed facts submitted by Wife and accepted by Trustee and from undisputed facts of record in the underlying bankruptcy case.

1. On August 7, 1992, Debtor and Wife bought a house at 125 Hillcrest Drive in Laurel, Mississippi ("Hillcrest Property").

2. Debtor and Wife owned the Hillcrest Property as tenants by the entirety.

3. In 2011, Debtor pledged the Hillcrest Property as collateral for a $450,000 business line of credit with Regions Bank. Wife was not an obligor on the note, but she executed the deed of trust as required by state law. See Miss. Code Ann. § 89-1-29 ("A conveyance, mortgage, deed of trust or other incumbrance upon a homestead exempted from execution shall not be valid or binding unless signed by the spouse of the owner if the owner is married and living with the spouse . . . .").

4. On June 15, 2015, Debtor and Wife sold the Hillcrest Property.

5. At the sale's closing, Debtor's loan from Regions Bank was paid in the amount of $351,018.83.

6. After the payment to Regions Bank, $127,377.14 in proceeds remained.

7. The closing attorney wrote Wife a check for $127,377.14 from his escrow account.

8. The day after the sale of the Hillcrest Property, on June 16, 2015, Wife bought a house in her name only at 21 Joshbury Circle in Laurel, Mississippi ("Joshbury Property").

9. Wife used at least $63,688.57—half the $127,377.14 proceeds—to pay in part for the Joshbury Property.

10. On August 21, 2017, Debtor filed the underlying chapter 7 case.

11. Wife is not jointly obligated with Debtor on any debt for which a proof of claim was filed.

B. Conclusions of Law

Avoidance powers under § 544(b) authorize the trustee to use state fraudulent transfer law to recover assets for the bankruptcy estate. 11 U.S.C. § 544(b)(1); Cadle Co. v. Mims (In re Moore), 608 F.3d 253, 260 (5th Cir. 2010) ("If an actual, unsecured creditor can, on the date of the bankruptcy, reach property that the debtor has transferred to a third party, the trustee may use § 544(b) to step into the shoes of that creditor and 'avoid' the debtor's transfer.").¹ The ability to proceed under state statutes, with their associated limitation periods, allows the trustee to avoid transfers that would otherwise not be avoidable under the reachback period of only two years for fraudulent transfers under the Bankruptcy Code. See 11 U.S.C. § 548(a)(1). Such is the circumstance here, with a three-year limitation period under MUFTA. See Miss. Code Ann. § 15-3-115(a).

Accordingly, Trustee pleads under MUFTA to recover half the $127,377.14 that remained as proceeds of the sale of the Hillcrest Property after payment of the Region's Bank loan. ECF No. 33 at 19. Under MUFTA, a debtor's transfer is fraudulent as to a creditor if the transfer was made "with actual intent to hinder, delay or defraud any creditor of the debtor." Miss. Code Ann. § 15-3-107(1). Actual intent is determined by considering a nonexclusive list of statutory factors tending to evidence an intent to defraud. See Miss. Code Ann. § 15-3-107(2)(a)-(n).

But Trustee cannot recover under MUFTA, because the statute's definition of "asset" as "property of a debtor" excludes "[p]roperty to the extent it is generally exempt under nonbankruptcy law." Miss. Code Ann. § 15-3-101(b)(ii). It is long-settled law in Mississippi that a transfer of exempt property is not fraudulent, regardless of intent. See, e.g., Joe T. Dehmer Distribs, Inc. v. Temple, 826 F.2d 1463, 1467 (5th Cir. 1987) (recognizing under Mississippi law that conveyance of homestead by debtor to wife up to amount of homestead exemption does not defraud creditors); Howell v. Gen. Cont. Corp., 91 So. 2d 831, 836 (Miss. 1957) (holding that debtor could convey to wife the extent and value of homestead up to amount of exemption regardless of his intention toward creditors); Orgill Bros. v. Gee, 120 So. 737, 738 (Miss. 1928) ("An insolvent debtor may make a valid gift of his property, exempt from execution. . . . A sale thereof is valid, even though made with intent to defraud his creditors.").

Under Mississippi law, the full value of a home held by a debtor and non-debtor spouse in a tenancy by the entirety is not subject to any process that could arise from debts owed only by the debtor, as this Court has...