In Re: Barbara Allen Chadwick
| Decision Date | 04 February 2011 |
| Docket Number | No. 09-11047,No. 09-1183,09-11047,09-1183 |
| Parties | In re: BARBARA ALLEN CHADWICK, BRIAN and DONNA WEIR, Plaintiffs/Movants, v BARBARA ALLEN CHADWICK, MELVIN CHADWICK, JAMES THOMPSON, SHAWN THOMPSON, JOSE GERENA, AUSTIN CHADWICK, CHADWICK FAMILY LIMITED PARTNERSHIP, DUTCH LAUNDRY LIMITED PARTNERSHIP, PROSPECT APARTMENTS FAMILY LIMITED PARTNERSHIP, and BANK OF CLEVELAND Defendants/Respondents. |
| Court | United States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Eastern District of Tennessee |
Shelley D. Rucker
UNITED STATES BANKRUPTCY JUDGE
In this action the Plaintiffs, Brian and Donna Weir ("Plaintiffs"), seek to avoid the transfer by the Debtor Barbara Chadwick of an entirety interest in her residence (the "Residence").1 The recipient of the transfer is a family limited partnership owned by the Debtor and her family members. The Debtor serves as the general partner. The Plaintiffs seek to avoid this transfer on both constructive and actual fraud grounds pursuant to Tennessee's Uniform Fraudulent Transfer Act ("UFTA"). Tenn. Code Ann. § 66-3-305(a)(1)-(2). Defendants deny that the Plaintiffs can demonstrate either actual or constructive fraud.
Based upon the proof presented at trial, the arguments of counsel and the entire record, the court finds that the Debtor's transfer of her tenancy by the entireties interest in her Residence to the Chadwick Family Limited Partnership (the "Residence Partnership") was not made with intent to hinder, delay or defraud her creditors; however, it was a transfer of an asset for less than reasonably equivalent value at a time when the Debtor intended to incur, or believed or reasonably should have believed that the Debtor would incur debts beyond the Debtor's ability to pay as they became due. Based on those findings, the court concludes that the transfer of the survivorship interest to the Residence Partnership is void; and the Debtor's survivorship interest should be returned to the estate for administration through the plan of reorganization.
28 U.S.C. §§ 157 and 1334, as well as the general order of reference entered in this district provide this court with jurisdiction to hear and decide this adversary proceeding. The Plaintiffs' action regarding fraudulent transfer is a core proceeding. See 28 U.S.C. § 157(b)(2)(H).
The parties agree that the Debtor Barbara Chadwick ("Debtor") is sixty-two years old and married to Melvin Chadwick. Defendants Jose Gerena, Shon Thompson, and James Thompson are her sons, and Austin Chadwick is her grandson. See [Doc. Nos. 23-1, 27]. The Debtor operates a construction business as a sole proprietorship and is seeking to reorganize that business in a Chapter 11 as a "small business debtor." There has been neither a creditor's committee nor a trustee appointed in this case. See [Doc. No. 23-1, Ex. 3, pp. 24-27].
The Plaintiffs' claim arises from a judgment granted by the Chancery Court of Bradley County, Tennessee. The chancery court suit was brought by the Debtor to enforce a lien against the Weirs on March 20, 2007. The suit alleged that the Plaintiffs breached the contract relating to the construction of a home for the Plaintiffs during 2006. See [Doc. No. 23-1, Ex. 3, pp. 16-22]. The Plaintiffs then filed a counterclaim against the Debtor on June 11, 2007 asserting that she engaged in deceptive and unfair trade practices in violation of the Tennessee Consumer Protection Act, Tenn. Code Ann. § 47-18-101 et seq. ("TCPA"). See [Doc. No. 23-1, Ex. 4, pp. 31-35].
The parties participated in the trial in the chancery court on several different days beginning on June 5, 2008 through September 29, 2008. On February 4, 2009 the chancery court rendered a judgment in favor of the Plaintiffs in the amount of $382.45. See [Doc. No. 231, Ex. 6, pp. 44-47].
Around the same time that the Debtor began work on the Plaintiffs' house, the Debtorwas involved in a serious motorcycle accident. Her injuries made her realize that she and her husband "didn't have [their] affairs in order." [Barbara Chadwick Trial Testimony, Sept. 21, 2010, at 11:38 a.m.]. To remedy that problem, she attended a seminar on family limited partnerships. After doing extensive study on the seminar materials, the Debtor prepared a deed entitled "Quit Claim Deed" and limited partnership agreements. In the summer of 2008, she organized the Dutch Laundry Barn Family Limited Partnership and the Prospect Apartments Family Limited Partnership into which she and her husband transferred the laundry and the apartments that they owned.
In addition to these new entities, the Debtor formed the Residence Partnership, and the State of Tennessee issued a certificate of limited partnership on June 23, 2008.See [Doc. No. 23-1, Ex. 9, p. 60]. The Debtor testified that the partners included the Debtor's husband and her sons, James Thompson, Shon Thompson, and Jose Gerena, and her grandson, Austin Chadwick. [Barbara Chadwick Trial Testimony, Sept. 21, 2010, at 10:29 a.m.]; [Doc. No. 23-1, Exs. 1-2, 5, 11-13, 15, 16, 19, Deposition of Barbara Allen Chadwick ("Chadwick Dep."), pp. 5556].
Prior to the execution of the agreement for the Residence Partnership, the Debtor prepared the Quit Claim Deed which she and her husband executed. Trial Ex. 5. The deed transferred a fee simple interest in their Residence to the Residence Partnership. The face of the deed contains a sworn statement signed by the Debtor which states, "I... swear or affirm that the actual consideration for this transfer or value of the property transferred, whichever is greater is $0, which amount is equal to or greater than the amount which the property transferred would command at a fair voluntary sale." There appears to have been no transfer tax paid on the recording. The deed was recorded in the office of the Register of Deeds for McMinn County, Tennessee on June 26, 2010. Chadwick Dep., pp. 54-55; [Doc. No. 23-1, Ex. 10, p. 62].
The parties stipulated that prior to the transfer of the Residence to the Residence Partnership, the Debtor with her husband owned the Residence as tenants by the entirety and that there were no loans or liens against Residence. [Barbara Chadwick Trial Testimony, Sept. 21, 2010, at 10:29 a.m.]; Chadwick Dep., p. 10. The Residence is a large home located directly on the Hiawassee River, in Calhoun, McMinn County, Tennessee. It was built over a number of years by the Debtor and her family and completed in the mid 1990s. The house has a boat dock and includes adjacent tracts of land. The most recent tax appraisal of 2009 reflects a value of approximately $460,000 but neither party provided appraisal testimony of its current value. Trial Ex.6.
The agreement creating the Residence Partnership (the "Residence Partnership Agreement") was introduced as an exhibit at the hearing. It appears to be a form document which the Debtor testified she prepared herself. It is not dated. Trial Ex.17. Despite paragraph 11.1 of the agreement providing that "Each party shall become bound by the agreement immediately upon fixing his or her signature hereto, independently of the signature of any other Party," only the Debtor signed the agreement. Where there were lines for the other parties, the Debtor signed their names to the agreement. The Debtor's signature was notarized on July 8, 2008, and the notary's acknowledgment indicates that only Barbara Chadwick appeared before her.2 The Debtor admitted that, after she had created the Residence Partnership, her sons and grandson knew that they each owned 20% of the Residence, but they did not understand the "legal aspects" of the Residence Partnership. [Barbara Chadwick Trial Testimony, Sept. 21, 2010, at 10:53 a.m.]. No one reported the transfer as a gift on their tax returns or paid transfer tax equivalent to the value of the interests being conveyed to the other members. The Debtor did not treat her occupation of the Residence any differently after the transfer of the Residence to the Residence Partnership than she had prior to the transfer. The Residence did not generate any income, and she and her husband continued to live in the Residence rent free.
Paragraph 2.1 of the Residence Partnership Agreement, entitled "Initial Capital Contributions", states,
+------------------+-----+
| General Partners | |
+------------------+-----+
| Barbara Chadwick | 10% |
+------------------+-----+
| Limited Partners | |
+------------------+-----+
| Melvin Chadwick | 10% |
+------------------+-----+
| James Chadwick | 20% |
+------------------+-----+
| Shon Chadwick | 20% |
+------------------+-----+
| Jose Gerena | 20% |
+------------------+-----+
| Austin Chadwick | 20% |
+------------------+-----+
See Trial Ex. 17. Schedule 'A' refers to the parties making the contributions as "Grantors". Three tracts of land (which are the same tracts that are listed on the Quit Claim Deed from the Debtor and her husband to the Residence Partnership) and a 2006 Volkswagen3 are listed as the assets being transferred by the Grantors. Although there are blanks for such information, the schedule does not reflect which partner is contributing the asset listed. The schedule hassignature lines for all of the Grantors contributing assets, but none of the partners, including the Debtor, signed Schedule A.
Consistent with the chart above, the Debtor testified that she was the general partner and held a 10% interest in the Residence Partnership. Mr. Chadwick received a 10% interest, and each of the other family members listed as partners received an interest...
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