In re Berg, Bankruptcy No. 05 B 58649.
| Decision Date | 10 April 2008 |
| Docket Number | Adversary No. 06 A 01026.,Bankruptcy No. 05 B 58649. |
| Citation | 387 B.R. 524 |
| Parties | In the matter of Stanley BERG, Debtor. Ronald R. Peterson, Plaintiff, v. Stanley Berg, et al., Defendant. |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
Ronald R. Peterson, Esq., Elizabeth A. Kalisz, Esq., Jenner & Block, Chicago, IL, for Plaintiff.
Marc O. Beem, Esq., Roger J. Perlstadt, Esq., Miller Shakman & Beem, LLP, Chicago, IL, for EHome Credit Corp. and Wilshire Credit Corp.
James J. Ayres, Esq., Novoaelsky Law Offices, Chicago, IL, for Rothmann/Tucker Trust.
Jeffrey Strange, Esq., Jeffrey Strange & Associates, Wilmette, IL, for Defendant Stanley Berg.
John S. Delnero, Esq., Adam R. Schaeffer, Esq., Bell, Boyd & Lloyd LLC, Chicago, IL, for Michael Frisbie.
Gloria Natoli, Esq., Law Offices of Gloria Natoli, Mt. Prospect, IL, for Bhagvan Patel.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
On October 15, 2005, Stanley Berg ("Debtor") filed for relief under chapter 7 of Title 11 of the United States Code § 101 et seq. ("Bankruptcy Code").1 At the time of filing, Debtor and his wife held a recorded fee simple interest in property located at 2205 Kipling Lane, Highland Park, Illinois ("Property"). It is asserted that Debtor's undivided one-half interest in the Property became property of the estate pursuant to 11 U.S.C. § 541(a)(1). Title to the Property was contested by various claims, and clouded by a quitclaim deed ("Quitclaim Deed") allegedly executed by Debtor on April 3, 2005, and recorded in Lake County, Illinois on April 18, 2005.
Plaintiff, Ronald' Peterson ("Trustee" or "Plaintiff'), is the duly appointed chapter 7 Trustee for Debtor's bankruptcy estate ("Estate"). Plaintiff-Trustee subsequently filed this ten count adversary complaint against Debtor, his wife, Ingrid Berg, Michael Frisbie, Wilshire Credit Corp. Home Credit Corp., Gary Tucker, the Rothmann/Tucker Trust, Leonard Rothmann, and Bhagvan Patel (collectively "Defendants").
In Count I, Plaintiff seeks to avoid, pursuant to 11 U.S.C. § 544(a)(3), a purported consensual lien held by Michael Frisbie ("Frisbie") against the Property, because said lien allegedly does not comply with requirements for mortgages under Illinois law.
In Count II, Plaintiff seeks to avoid, as a post-bankruptcy transfer pursuant to 11 U.S.C. § 549, a mortgage purportedly held by eHome Credit Corp. ("eHome") against the Property. In addition, Plaintiff alleges that the act of perfecting the security interest by recording the mortgage without court permission was a violation of the automatic stay pursuant to 11 U.S.C. § 362(a)(4). Also, Plaintiff seeks to preserve the avoidance for benefit of the Estate under to 11 U.S.C. § 551. Plaintiff now seeks to avoid the Mortgage as an unrecorded lien interest using his "strongarm" powers under § 544(a)(3).
Wilshire Credit Corp. ("Wilshire") was servicer of the eHome mortgage ("eHome Mortgage"), and did not hold a separate mortgage of its own against the Property. However, in Count III, Plaintiff pleaded that he seeks to avoid, pursuant to § 544(a)(3), a mortgage (if any) purportedly held by Wilshire against the Property. The legal description in the eHome Mortgage (that does exist) describes a parcel of real property in New York and Plaintiff alleges that it was recorded there. Therefore, Plaintiff pleaded that if there was a mortgage on the Property held by Wilshire, it would be an unperfected security interest under Illinois law. As it turns out, there was and is no Wilshire mortgage; as servicer, Wilshire was merely the agent of eHome.
On March 25, 2005, Gary Tucker ("Tucker"), Bhagvan Patel ("Patel") and Leonard Rothmann ("Rothmann") filed a Complaint for Constructive Trust/Quiet Title ("Chancery Case") against Debtor and Michael Frisbie in the Illinois Circuit Court of Cook County, Chancery Division. On the same day, those Plaintiffs recorded a lis pendens on the Property. In Count IV, Plaintiff seeks to quiet title to the Property against the claims made in that suit.
In Count V, Plaintiff seeks to avoid, pursuant to § 544(b) and 28 U.S.C. § 3301 et seq., any interest asserted or held by Tucker, Rothmann, Patel or the Rothmann/Tucker Trust ("Trust") as a fraudulent transfer. When the United States is a creditor, it has six years to avoid a fraudulent transfer pursuant to 28 U.S.C. § 3306(b)(1), and the Trustee claims the rights to piggyback on the Government's limitations period pursuant to his "strongarm" powers under 11 U.S.C. § 544(b).
In Count VI, Plaintiff seeks to avoid as a fraudulent transfer under 11 U.S.C. § 548 the Quitclaim Deed that was allegedly executed by Debtor for benefit of the Rothmann/Tucker Trust on or about April 3, 2005. Pursuant to § 548(a)(1), a trustee may avoid any transfer made within one year of the bankruptcy with actual intent to hinder, delay or defraud any creditor, or for which the debtor received less than reasonably equivalent value in exchange for such transfer if the debtor was insolvent at the time of the transfer or became insolvent as a result thereof. The Trustee alleges that the transfer was made with actual intent to hinder, delay or defraud Debtor's creditors, and also that it was made without adequate consideration while Debtor was insolvent.
When an attorney engages in a business transaction with a client a rebuttable presumption of undue influence arises voiding that transaction. In Count VII, Plaintiff alleges that Tucker had a fiduciary relationship with Debtor as his attorney and breached that duty to Debtor. Plaintiff, therefore, seeks to have the Quitclaim Deed earlier mentioned in Count VI voided as the product of undue influence.
In Count VIII, Plaintiff alleges that Debtor's discharge should be denied pursuant to 11 U.S.C. §§ 727(a)(2) through (5), because Debtor transferred an interest in the Property within one year of filing bankruptcy with the actual intent to hinder, delay or defraud creditors; because Debtor concealed, destroyed, or failed to keep and preserve records from which his financial condition could be ascertained; and because Debtor made false oaths regarding his bankruptcy schedules, and otherwise failed to account for his losses. Debtor defends with arguments that these claims were not sufficiently pleaded, were waived, or that the Trustee has not otherwise carried his burden of proof regarding those objections to discharge.
In Count IX, Plaintiff seeks, pursuant to 11 U.S.C. § 542, to compel Tucker to turnover the Property (where he resides) to the Trustee. In order to compel turnover, the Trustee must establish that the Property is property of the bankruptcy Estate pursuant to 11 U.S.C. § 541(a)(1) as interpreted by the Supreme Court in U.S. v. Whiting Pools, Inc., 462 U.S. 198, 204-09, 103 S.Ct. 2309, 76 L.Ed.2d 515 (1983). See Century Hotels v. U.S., 952 F.2d 107, 112-13 (5th Cir.1992). Tucker disputes that the Property became property of the Estate. Count IX, therefore, turns on whether Debtor's one-half interest in the Property is found to be property of the Estate against the equitable interests asserted by Count V Defendants, and the resolution of Plaintiffs action to quiet title in Count TV.
Finally, in Count X, Plaintiff seeks permission to sell the Property pursuant to 11 U.S.C. § 363(b). The Trustee alleges that he is authorized, pursuant to § 363(h), to sell both the Estate's one-half interest and the one-half interest of Ingrid Berg ("Mrs. Berg").
After considering the evidence, including stipulated evidence, and arguments presented by the parties, the following Findings of Fact and Conclusions of Law are made and will be entered.
The parties stipulated to a timeline and outline of facts,' which are copied as presented by the parties and integrated here. The evidence presented at trial provided the clarifying detail needed to decide the case. That evidence included admissions by Tucker and Debtor as to wrongful intent, their and Mrs. Berg's poor demeanor on the witness stand and their strange stories and accusations (uncorroborated by documents) as to events in which a twenty-five year professional and personal relationship disintegrated in a spiral of deceit. For those reasons, discussed in detail below, it is found and held that the testimony of Tucker, Debtor and Mrs. Berg was not credible except when it was an admission against interest or was reliably corroborated by documents.
1. Stanley Berg is an individual residing in the State of Illinois and, on October 15, 2005 ("Petition Date"), filed a voluntary petition for relief under chapter 7 the Bankruptcy Code.
2. Michael Frisbie is an individual residing in the State of Illinois who claims a security interest in real property commonly known as 2205 Kipling Lane, Highland Park, Illinois 60035.
3. Bhagvan Patel is an individual residing in the State of Illinois and asserts
sortie type of equitable interest in the Property.
4. Gary Tucker is an individual residing at the Property, was at one time the Debtor's lawyer and asserts some type of equitable interest in the Property.
5. The Rothmann/Tucker Trust is a trust and asserts some type of equitable or legal interest in the Property.
6. The Trustee is the duly appointed, qualified and permanent chapter 7 trustee for the bankruptcy estate of the Debtor.
7. The Debtor listed in his Schedule A real property with an address of 825 Kipling Lane, Highland Park, Illinois. However, there is no such address as 825 Kipling.
8. The legal description of the Property is as follows:
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