In re Dlc, Ltd.

• Decision Date: 18 June 2003
• Docket Number: No. 03-6010NE.,03-6010NE.
• Citation: 295 B.R. 593
• Parties: In re DLC, LTD., a Nebraska Corporation, Debtor. Thomas D. Stalnaker, Trustee, Plaintiff-Appellee, v. DLC, Ltd., a Nebraska Corporation; DLC Family Trust, Ltd., a Nebraska Corporation, Defendants-Appellants.
• Court: U.S. Bankruptcy Appellate Panel, Eighth Circuit

295 B.R. 593

In re DLC, LTD., a Nebraska Corporation, Debtor.

Thomas D. Stalnaker, Trustee, Plaintiff-Appellee, v. DLC, Ltd., a Nebraska Corporation; DLC Family Trust, Ltd., a Nebraska Corporation, Defendants-Appellants.

No. 03-6010NE.

United States Bankruptcy Appellate Panel of the Eighth Circuit.

Submitted May 21, 2003.

Filed June 18, 2003.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Donald L. Swanson, Charles E. Benish, Carol A. Sewell, Koley & Jessen, Omaha, NE, for appellee.

Richard D. Myers, McGill & Gotsdiner, Omaha, NE, Larry R. Demerath, Valley, NE, for Appellant.

Before KRESSEL, Chief Judge, SCHERMER and DREHER, Bankruptcy Judges.

KRESSEL, Chief Judge.

DLC, Ltd. and DLC Family Trust, Ltd. appeal from the order of the bankruptcy court¹ allowing the trustee to avoid certain fraudulent transfers and recover a portion of the transferred property. They also appeal from the bankruptcy court's order allowing fees and expenses to the trustee and his attorneys. We affirm.

BACKGROUND

For a number of years, the debtor, DLC, Ltd., operated a farming operation in Tilden, Nebraska. DLC purchased various crop inputs from Central Farmers Cooperative, Nonstock one of which was herbicide for its crops. In August of 1991, Cooperative filed a fertilizer lien with the county clerk of Antelope County. Several fertilizer liens were also filed in Madison and Pierce Counties. In 1991, DLC discovered that Cooperative had over-applied herbicide on its crops during at least the years of 1989, 1990, and 1991. In 1991, DLC experienced a hail storm on one farm, for which Blakely Crop Hail, Inc. provided insurance coverage.

Negotiations were undertaken between DLC and Cooperative for damages. On April 20, 1992, Cooperative filed a lawsuit in the Antelope County District Court of Nebraska against DLC seeking to foreclose certain fertilizer liens in order to recover amounts due to it for goods and services provided to DLC. Cooperative named Fort Calhoun State Bank as a defendant because the bank might assert an interest in the crops covered by Cooperative's liens. DLC filed an answer in which it generally denied the allegations of the complaint and asserted that the bank had lien rights prior to those of Cooperative. It also asserted defenses under the Uniform Commercial Code.

On June 24, 1993, Cooperative filed a motion for partial summary judgment. In an order dated August 26, 1993, the district court granted partial summary judgment to Cooperative, finding that DLC was indebted to Cooperative on its open account in the sum of $15,841.59 as of March 12, 1992, together with interest. The court also found that the affirmative defenses raised by DLC were conclusions of law and that no facts were alleged in support of the conclusions. On September 2, 1993, DLC filed a motion for a new trial, which was denied on October 12, 1993. This decision was appealed to the Nebraska Court of Appeals. In 1995 the Court of Appeals found there were genuine issues of material fact for trial, reversed the District Court's decision, and remanded the case to the district court for further proceedings.

In July of 1992, DLC filed a lawsuit against Cooperative in the U.S. District Court for the District of Nebraska, alleging that Cooperative violated the Racketeer Influenced and Corrupt Organizations Act by fraudulently inducing DLC to purchase and apply excessive herbicide. The district court dismissed the RICO action, holding that DLC could not prove its case. This decision was affirmed by the Eighth Circuit Court of Appeals in Demerath Land Co. v. Sparr, 48 F.3d 353 (8th Cir.1995).

After its RICO action was dismissed, DLC moved to amend its answer in Cooperative's lawsuit in Antelope County District Court and to file a counterclaim against Cooperative for negligence in over-applying the herbicide. The request was denied. On March 4, 1997, the District Court of Antelope County found for Cooperative based on a Confession of Judgment and Stipulation, and found that Cooperative was entitled to a judgment for $27, 127.22 together with interest thereon at 16% per annum on the unpaid balance from February 28, 1997.² Nothing in the judgment addressed the other issues contained in Cooperative's petition concerning its lien rights and priorities. On April 1, 1997 DLC appealed the decision to the Nebraska Supreme Court. The appeal was summarily dismissed by the Nebraska Supreme Court on April 14, 1999.

In May of 1993, the shareholders of DLC created DLC Family Trust, Ltd., and DLC transferred, among other things, several parcels of real estate to Family Trust. As partial consideration for the transaction, Family Trust executed and delivered to DLC a promissory note in the amount of $84,213. Although, thereafter, DLC and Family Trust filed tax returns reflecting that such transactions took place, and although one or the other of the entities notified various county recording offices as well as an office of the U.S. Department of Agriculture that the transactions took place, no deeds were prepared, delivered, or recorded representing conveyance of the real estate until March 24, 1994.

On November 23, 1994, following the recording of the deeds conveying the real estate, three lawsuits were filed by Fort Calhoun State Bank against DLC, Family Trust and others. Those suits alleged that the real estate conveyances were fraudulent transfers under the Nebraska Uniform Fraudulent Transfer Act. Each of the Fort Calhoun State Bank suits were resolved by settlement. The court entered an Order of Dismissal in each case. No trial was held and no judgments were entered.

On July 5, 1995, DLC, assigned to Family Trust all claims and demands which it had concerning the herbicide damage claim for the years of 1989, 1990, and 1991; the hail insurance claim for the year 1991, and a wrongful replevin or taking of personal property claim. DLC also forgave the $84,213 promissory note. As consideration for the transfer of the claims and the cancellation of the indebtedness, Family Trust agreed to prosecute the three claims. The assignment was also subject to the contingency that "if Trust collects from all claims an accumulated total sum greater than the amount of the note...any accumulated interest on said note...and the total amount of any fees and expenses expended and paid by the Trust in collection efforts, then DLC shall receive from Trust a payment equal to twenty five percent (25%) of such excess proceeds."

In 1995, two tax foreclosure suits were commenced by the County of Madison, Nebraska against Cooperative³ and Family Trust in Madison County district court. In its answer, Cooperative claimed that the transfer of the property amounted to a voidable transfer under the Uniform Fraudulent Transfer Act, §§ 36-701-36-712. In September of 1995, the taxes were paid and the foreclosure actions dismissed. An order of dismissal with prejudice was entered on September 14, 1995.

In June of 1995, DLC filed suit against Blakely for the hail damage caused to its crops in 1991. DLC filed bankruptcy on September 2, 1997⁴, which stayed the proceedings in the Blakely case. In January of 1999, Blakely, joined by DLC and Family Trust, moved for relief from the automatic stay. The bankruptcy court granted this motion and the matter was ultimately resolved between Blakely and Family Trust on May 4, 2000, with Blakely paying Family Trust a net settlement of $26,750.

In December of 1998, the trustee filed a complaint against DLC⁵ and Family Trust under 11 U.S.C. § 544(b) to avoid the transfers, the assignments and the promissory note forgiveness as fraudulent under the Nebraska Uniform Fraudulent Transfer Act, §§ 36-701-36-712 and asked that the transfers be recovered under 11 U.S.C. § 550. The trustee also requested that the bankruptcy court declare Family Trust a mere continuation of DLC, that Family Trust be held liable for the debts and obligations of DLC, and that the assets of Family Trust be deemed property of the bankruptcy estate. Finally, the trustee requested $84,213 principal, plus interest on the promissory note. In their answer, DLC and Family Trust raised, among other things, the defense of res judicata. They filed two motions for summary judgment based on this defense.

Their first motion for summary judgment dealt with the effects of res judicata upon Cooperative's debt in the tax foreclosure suit where Cooperative first raised the issue of fraudulent transfers. The bankruptcy court denied the appellants' motion for summary judgment, holding that an order that dismisses a case with prejudice but does not pronounce judgment nor grant or deny relief is not a judgment and therefore cannot be final. The appellants filed a motion for a new trial or rehearing, but the bankruptcy court denied the motion and reiterated its holding that res judicata does not apply to settlements that do not deny or grant any relief.

The appellants filed a second motion for summary judgment. This time, they argued the effects of res judicata on Cooperative's claim because of Cooperative's failure to join Family Trust as a necessary party in their suit to foreclose on the fertilizer liens. The bankruptcy court also denied this motion.

On October 3, 2001, Cooperative, DLC, and Family Trust entered into a settlement agreement that ended their ongoing lawsuits. The debtor then signed and filed a "satisfaction of claim" indicating payment of the claim by the appellants and their subrogation to Cooperative's rights under the claim.

After settlement of the Cooperative claim, the trustee's attorneys filed an application for attorneys fees. The bankruptcy court ruled that the adversary proceeding should move forward before the issue of attorneys fees was addressed. The appellants filed a motion to dismiss, the plaintiff and defendants entered into a Joint Preliminary Pretrial Statement, and a trial was held on February 26, 2002. The bankruptcy court...