Hofmann v. Drabner (In re Baldwin)

• Decision Date: 11 August 2014
• Docket Number: Bankruptcy No. 13–21159.,Adversary No. 13–2515.
• Citation: 514 B.R. 646
• Court: U.S. Bankruptcy Court — District of Utah
• Parties: In re Vicki Leigh BALDWIN, Debtor. George B. Hofmann, as Chapter 7 Trustee, Plaintiff, v. David L. Drabner and Marla Shelby–Drabner, Defendants.

514 B.R. 646

In re Vicki Leigh BALDWIN, Debtor.

George B. Hofmann, as Chapter 7 Trustee, Plaintiff,

v.David L. Drabner and Marla Shelby–Drabner, Defendants.

Bankruptcy No. 13–21159.

Adversary No. 13–2515.

United States Bankruptcy Court,

D. Utah.

Signed Aug. 8, 2014.

Filed Aug. 11, 2014.

Matthew M. Boley, George B. Hofmann, Parsons Kinghorn Harris, Salt Lake City, UT, for Plaintiff.

J. Thomas Beckett, Parsons Behle & Latimer, Salt Lake City, UT, for Defendants.

MEMORANDUM DECISION

WILLIAM T. THURMAN, Bankruptcy Judge.

The matters before the Court are the cross-motions for summary judgment filed by the Defendants David L. Drabner and Marla Shelby–Drabner (the “Drabners” or “Defendants”) and the Plaintiff George B. Hofmann (“Plaintiff”), the Chapter 7 Trustee in the underlying bankruptcy case of Vicki Leigh Baldwin (“Debtor”). The Plaintiff commenced the above-captioned adversary proceeding on December 23, 2013, seeking to avoid and recover for the benefit of the estate an alleged preferential or fraudulent transfer made to the Defendants shortly before the Debtor declared bankruptcy.¹

The Court conducted a hearing on the parties' cross-motions on June 19, 2014, at which hearing Matthew M. Boley appeared on behalf of the Plaintiff and J. Thomas Beckett appeared on behalf of the Defendants. The Court then took the matters under advisement. After carefully considering the parties' briefs and the arguments of counsel, and after conducting its own independent research of applicable law, the Court now issues the following Memorandum Decision, which constitutes the Court's findings of fact and conclusions of law under Federal Rule of Civil Procedure 52, made applicable to this adversary proceeding by Federal Rule of Bankruptcy Procedure 7052.²

I. JURISDICTION AND VENUE

The Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. § 1334(b) and § 157(a) and (b). The Plaintiff's complaint seeks to avoid and recover for the benefit of the estate a preferential or fraudulent transfer, making this a core proceeding under 28 U.S.C. § 157(b)(2)(F) and (H). The Court may enter a final order on the preference claim because it “stems from the bankruptcy itself.” ³ The ability of a bankruptcy court to enter a final order on a fraudulent transfer claim is less clear. ⁴ To the extent that the Constitution bars this Court from entering a final order on the Plaintiff's fraudulent transfer claim, this Court's ruling on that claim should be construed as proposed findings of fact and conclusions of law pursuant to 28 U.S.C. § 157(c)(1).⁵ Venue is appropriately laid in this District under 28 U.S.C. § 1409, and notice of the hearing on the cross-motions was properly given in all respects.

II. BACKGROUND AND FINDINGS OF FACT

The facts of this case are neither voluminous nor complex. Based on the parties' motions and exhibits attached thereto, the Court finds that the following facts are undisputed.

Before filing her bankruptcy petition, the Debtor operated a travel agency. The Drabners solicited the Debtor's services in arranging a travel package and made a deposit of $11,429. The Debtor did not provide the travel package or refund the deposit, and the State of Utah eventually filed a criminal case against the Debtor alleging theft. The State of Utah also filed a second criminal case against the Debtor regarding her interactions with one Lawrence Burrill (“Burrill”). As with the Drabners, Burrill made a deposit with the Debtor, who did not provide the travel package Burrill requested or refund his deposit.

The Debtor's attorney in the criminal matters, Jeffrey D. Salberg (“Salberg”), negotiated a deal with the prosecutor that would allow for dismissal of the theft charges if the Debtor repaid the deposits to the Drabners and Burrill. Because the Debtor lacked the necessary funds, her mother, Sharon Baldwin, arranged to make the payments. On or about January 23, 2013, she wired $18,747 to Salberg's trust account.⁶ On January 25, 2013, Salberg wrote two checks drawn on his trust account—one to the Drabners for $11,429 and the other to Lawrence Burrill for $7,318. The prosecutor delivered the checks to the respective parties, and the charges against the Debtor were dismissed.⁷

On February 8, 2013, the Debtor filed a voluntary petition under Chapter 7 of the Bankruptcy Code. The Plaintiff filed the present adversary proceeding on December 23, 2013, seeking to avoid and recover the transfer to the Defendants for the benefit of the estate.⁸

III. DISCUSSIONA. Summary Judgment Standard

Under Federal Rule of Civil Procedure 56(a), made applicable in adversary proceedings by Federal Rule of Bankruptcy Procedure 7056, the Court is required to “grant summary judgment 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.” ⁹ Substantive law determines which facts are material and which are not. “Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment.” ¹⁰ Whether a dispute is “genuine” turns on whether “the evidence is such that a reasonable [fact finder] could return a verdict for the nonmovingparty.” ¹¹ In sum, the Court's function at the summary judgment stage is to “determine whether there is a genuine issue for trial.” ¹²

The moving party bears the burden to show that it is entitled to summary judgment,¹³ including the burden to properly support its summary judgment motion as required by Rule 56(c).¹⁴ Once the moving party meets its initial burden, “the burden shifts to the nonmoving party to demonstrate a genuine issue for trial on a material matter.” ¹⁵ The nonmoving party may not rely solely on allegations in the pleadings, but must instead designate “specific facts showing that there is a genuine issue for trial.” ¹⁶ Entry of summary judgment is required, however, “ ‘against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial.’ ” ¹⁷

When considering a motion for summary judgment, the Court views the record in the light most favorable to the nonmoving party,¹⁸ but the Court does not weigh the evidence or make credibility determinations.¹⁹ On cross-motions for summary judgment, each motion must be considered independently. ²⁰

As an initial matter, the Court must determine what evidence it may consider in ruling on the cross-motions. The Defendants objected to consideration of the Debtor's Rule 2004 examination transcript and the declarations of Sharon and Ryan Baldwin ²¹ on the ground that they constitute inadmissible hearsay.²² The Defendants explicitly renewed their objection, at least as regards Sharon Baldwin's declaration, at the hearing held on June 19.

Any material offered to support or dispute a fact must be admissible in evidence.²³ Nevertheless, “[a]t the summary judgment stage, evidence need not be submitted ‘in a form that would be admissible at trial.’ ” ²⁴ Instead, “the content or substance of the evidence must be admissible.” ²⁵ This distinction recognizes that affidavits,for example, which are typically inadmissible at trial as hearsay, are an appropriate form of evidence on a motion for summary judgment, but the content of the affidavit must be admissible.²⁶ Where the content of the affidavit is inadmissible, however, courts cannot consider that content at summary judgment because even a subsequent change in form would not transform its inadmissible character.²⁷

Based upon these principles, the Court concludes that the Debtor's Rule 2004 examination transcript and the declarations of Sharon and Ryan Baldwin are permissible forms of evidence because the evidence contained therein could be presented in an admissible form at trial. Therefore, the Court will consider these pieces of evidence in ruling on the parties' cross-motions, but to the extent that they contain inadmissible content, such as hearsay statements, the Court will disregard that inadmissible content.

B. Plaintiff's Preferential Transfer Claim

While the Plaintiff's complaint alleges that the transfer at issue was preferential or fraudulent, with the exception of a brief section in the Defendants' motion, the parties confined their arguments exclusively to 11 U.S.C. § 547.²⁸ That section serves a dual purpose: “to discourage actions by creditors that might prematurely compel the filing of a petition and to secure an equal distribution of assets among creditors of like class.” ²⁹Section 547(b) provides:

[T]he trustee may avoid any transfer of an interest of the debtor in property—

(1) to or for the benefit of a creditor;

(2) for or on account of an antecedent debt owed by the debtor before such transfer was made;

(3) made while the debtor was insolvent;

(4) made

(A) on or within 90 days before the date of the filing of the petition; ... and

(5) that enables such creditor to receive more than such creditor would receive if—

(A) the case were a case under chapter 7 of this title;

(B) the transfer had not been made; and

(C) such creditor received payment of such debt to the extent provided by the provisions of this title.

A trustee bears the burden to prove these elements by a preponderance of the evidence,³⁰ and a failure to prove even one of the elements negates the trustee's claim.³¹

For the purposes of these cross-motions, the parties concede that all elements have been satisfied except for the threshold requirement that the transfer be of “an interest of the debtor in property.”

The Bankruptcy Code does not define that phrase, but guidance as to its meaning “is to be drawn from the definition of ‘property of the estate’ set forth in § 541(a).” ³² Section 541(a)(1) defines “property of the estate” as “all legal or equitable interests of the debtor in property as of the commencement of the case,” which the Supreme Court has held is coextensive...