Hillen v. Lucille Borses Family Tr. (In re Shiloh Mgmt. Servs.), Bankruptcy Case No. 17-01458-JMM

Decision Date17 June 2020
Docket NumberAdv. Proceeding No. 19-06003-JMM,Bankruptcy Case No. 17-01458-JMM
PartiesIn Re: Shiloh Management Services, Inc., Debtor. Noah G. Hillen, Plaintiff, v. Lucille Borses Family Trust, Defendant.
CourtU.S. Bankruptcy Court — District of Idaho

In Re: Shiloh Management Services, Inc., Debtor.

Noah G. Hillen, Plaintiff,
v.
Lucille Borses Family Trust, Defendant.

Bankruptcy Case No. 17-01458-JMM
Adv. Proceeding No. 19-06003-JMM

UNITED STATES BANKRUPTCY COURT DISTRICT OF IDAHO

June 17, 2020


MEMORANDUM OF DECISION

Appearances:

Matthew T. Christensen, Boise, Idaho, Attorney for Plaintiff.

Gery W. Edson, Boise, Idaho, Attorney for Defendant.

Introduction

The Chapter 7 Trustee ("Plaintiff") commenced this adversary proceeding on January 17, 2019. Dkt. No. 1. The Defendant, Lucille Borses Family Trust ("Defendant"), filed an answer on March 26, 2019. Dkt. No. 5. Both parties filed pre-trial memorandums in support of their respective positions. Dkt. Nos. 9 and 14. The trial was

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held on January 9, 2020, Dkt. No. 19, and both parties were afforded the opportunity to submit written closing arguments. Dkt. No. 20. Only the Plaintiff filed a written closing argument. Dkt. No. 21. Having now considered the record, applicable law, and arguments of the parties, the Court makes the following findings of fact and conclusions of law. Rules 7052; 9014.1

Facts

On November 1, 2017, an involuntary petition was filed concerning the Debtor, Shiloh Management Services, Inc. ("Shiloh" or "Debtor"). 17-01458-JMM, Dkt. No. 1. The Order for relief was entered on December 1, 2017. Dkt. No. 44. Nathan Pyles solicited loans from private entities as Shiloh's president. Dkt. No. 9. Id. One of these private entities is the Defendant, for which Shawn Dammarell is the trustee. Dkt. No. 20. At issue in this adversary proceeding are four promissory notes and deeds of trust. Dkt. No. 1. The notes are referred to as the First 20018 Note, the Second 20018 Note, the 20172 Note, and the 20093 Note. Id. Each note was purportedly secured by a corresponding deed of trust, referred to as the First 20018 Deed of Trust, the Second 20018 Deed of Trust, the 20172 Deed of Trust, and the 20093 Deed of Trust. Id. Mr. Pyles personally drafted the notes and deeds of trust. Dkt. No. 20. Plaintiff argues these deeds of trust are avoidable.

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A. First 20018 Note and Deed of Trust

The Defendant agreed to loan Debtor $75,000. Dkt. No. 9. The parties executed the First 20018 Note evidencing the loan. Id. Mr. Pyles signed the First 20018 Note on March 18, 2017. Ex. 100. This Note has a stated maturity date of September 17, 2017, and references a "Subject Property" of "20018 Silver Spur." Id. The Defendant provided a check for $75,000, and that check was deposited by the Debtor, on July 27, 2017. Ex. 108.

A deed of trust was executed purportedly to secure the First 20018 Note ("First 20018 Deed of Trust"). Ex. 101. This Deed of Trust states that it was "Made this 16 day of March, 2017." Id. Mr. Pyles signed it on April 19, 2017, and it was recorded on the same day. Id. This Deed of Trust apparently secures a note with a maturity date of November 15, 2017. Id. It further provides:

[F]or the purpose of securing payment of the indebtedness evidenced buy [sic] a promissory note, of even date herewith, executed by the Grantor in the sum of Seventy Five Thousand Dollars . . . and to secure payment of all such further sums as may hereafter be loaned or advanced by the Beneficiary herein to the Grantor herein, or any or either of them, while record owner of present interest, for any purpose, and of any notes, drafts or other instruments representing such further loans, advances or expenditures together with interest on all such sums of the rate therein provided.

Id. (emphasis added).

This Deed of Trust references a property "Commonly known as 20018 Silver Spur, Wilder, ID," and references an "Exhibit A," attached thereto, which provides an apparent legal description of the property: "Lot 11, Block 1, Apple Hills Subdivision,

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according to the plat thereof, filed in Book 42 of Plats at page(s) 7, records of Canyon County, Idaho." Id.

This Deed of Trust was notarized by Jayme Miller. Id. Ms. Miller was a contractor that did "odd jobs" for Debtor. Dkt. No. 20. She knew Mr. Pyles personally and knew that he had the authority to sign on behalf of Debtor as president. Id. She regularly notarized documents for Debtor, including deeds of trust. Id. Mr. Pyles signed every document that Ms. Miller notarized in her presence, and she did not notarize any document that first had Mr. Pyles' signature on it before being presented to her. Id.

The notary block on the First 20018 Deed of Trust contains the following language:

On this 19th day of April in the year 2017, before me, the undersigned, a Notary Public in and for said State, personally appeared Nathan Pyles, President of Shiloh Management Services, Inc known or identified to me to be the person(s) whose name(s) is/are subscribed to the within instrument, and acknowledged to me that he/she/they executed the same.

Ex. 101.

Both Ms. Miller and Mr. Pyles testified that Mr. Pyles did not acknowledge any of the documents before the notary prior to signing.

B. Second 20018 Note and Deed of Trust

The Parties disagree on the purpose of the Second 20018 Note. Plaintiff argues that this is an independent loan made by the Debtor to the Defendant. Dkt. No. 1. Defendant argues that this is merely a second $75,000 advance or draw related to the

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First 20018 Note. Dkt. No. 9. Neither the Second 20018 Note nor the Second 20018 Deed of Trust refer to the First 20018 Note or the First 20018 Deed of Trust.

The Second 20018 Note was prepared and signed by Mr. Pyles on behalf of Debtor on July 27, 2017. Ex. 102. This Note has a face value of $75,000, a maturity date of December 27, 2017, and references a "Subject Property" of "20018 Silver Spur." Id.

A deed of trust was executed purportedly to secure the Second 20018 Note ("Second 20018 Deed of Trust"). Ex. 103. This Deed of Trust states that it was "Made this 27 day of July, 2017." Id. Mr. Pyles signed it on August 31, 2017, and it was recorded on the same day. Id. It apparently secures a note with a maturity date of February 28, 2018. Id. This Deed of Trust further provides that it is "for the purpose of securing payment of the indebtedness evidenced buy [sic] a promissory note, of even date herewith . . . in the sum of Seventy Five Thousand Dollars . . . ." Id. (emphasis added).

This Deed of Trust references a property "Commonly known as 20018 Silver Spur, Wilder, ID," and references an "Exhibit A," attached thereto, and provides an apparent legal description of the property: "Lot 11, Block 1, Apple Hills Subdivision, according to the plat thereof, filed in Book 42 of Plats at page(s) 7, records of Canyon County, Idaho." Id.

The notary block on this Deed of Trust contains the following language:

On this 31st day of August in the year 2017, before me, the undersigned, a Notary Public in and for said State, personally appeared Nathan Pyles, President of Shiloh Management Services, Inc known or identified to me to be the person(s) whose name(s) is/are subscribed to the within instrument, and acknowledged to me that he/she/they executed the same.

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Ex. 103.

Ms. Miller also notarized this Deed of Trust. Id. As with the First 20018 Deed of Trust, both Ms. Miller and Mr. Pyles testified that Mr. Pyles did not acknowledge any of the documents before the notary prior to signing.

C. 20172 Note and Deed of Trust

The Defendant executed a third loan to Plaintiff in the amount of $50,000, referred to as the 20172 Note. Ex. 104. This Note was prepared by Mr. Pyles on behalf of Debtor on July 27, 2017, but was signed by Mr. Pyles on July 31, 2017. Id. It has a maturity date of September 30, 2017, and references a "Subject Property" of "20172 Silver Spur." Id.

A deed of trust was executed purportedly to secure the 20172 Note ("20172 Deed of Trust"). Ex. 105. This Deed of Trust states that it was "Made this 31 day of July, 2017." Id. Mr. Pyles signed it on August 10, 2017, and it was recorded on August 11, 2017. Id. This Deed of Trust apparently secures a note with a maturity date of October 28, 2017, and further provides that it is "for the purpose of securing payment of the indebtedness evidenced buy [sic] a promissory note, of even date herewith . . . in the sum of Fifty Thousand Dollars . . . ." Id. (emphasis added).

This Deed of Trust references a property "Commonly known as 20172 Silver Spur, Wilder, ID." Id. It references an "Exhibit A," attached thereto, and provides an apparent legal description of the property: "Lot 3, Block 1, Apple Hills Subdivision, according to the plat thereof, filed in Book 42 of Plats at page(s) 7, records of Canyon County, Idaho." Id.

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This Deed of Trust was notarized by Lori Fitzgerald. Id. Ms. Fitzgerald worked for Pioneer Title at the time this Deed of Trust was notarized. Dkt. No. 20. Prior to notarizing this document, she had previously notarized several documents for Debtor, including other deeds of trust. Id. She had known Mr. Pyles for about five years, and knew that Mr. Pyles had the authority to sign on behalf of Debtor. Mr. Pyles signed every document that Ms. Fitzgerald notarized in her presence. Id. She did not notarize any document that first had Mr. Pyles' signature on it before being presented to her. Id.

The notary block on this Deed of Trust contains the following language:

On this 10th day of August in the year 2017, before me, the undersigned, a Notary Public in and for said State, personally appeared Nathan Pyles, President of Shiloh Management Services, Inc known or identified to me to be the person(s) whose name(s) is/are subscribed to the within instrument, and acknowledged to me that he/she/they executed the same.

Ex. 105.

Both Ms. Fitzgerald and Mr. Pyles testified that Mr. Pyles did not acknowledge any of the documents before the notary prior to signing.

D. 20093 Note and Deed of Trust

The Defendant executed a fourth loan to Plaintiff in the amount of $50,000. Id. This is referred to as the 20093 Note.2 Ex. 106. It was prepared and signed by Mr. Pyles

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on behalf of Debtor on July 31, 2017...

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