In re Douglass

• Decision Date: 06 March 2009
• Docket Number: Adversary No. 08-1007.,Bankruptcy No. 04-12499-CAG.
• Citation: 413 B.R. 573
• Parties: In re Jeffrey Clark DOUGLASS, Debtor. Diana Bledsoe Douglass, Plaintiff, v. Deborah Langehennig, Chapter 13 Trustee, Jeffrey Clark Douglass, and Chase Manhattan Mortgage Corporation, Defendants.
• Court: U.S. Bankruptcy Court — Western District of Texas

413 B.R. 573

In re Jeffrey Clark DOUGLASS, Debtor Diana Bledsoe Douglass, Plaintiff, v. Deborah Langehennig, Chapter 13 Trustee, Jeffrey Clark Douglass, and Chase Manhattan Mortgage Corporation, Defendants.

Bankruptcy No. 04-12499-CAG.

Adversary No. 08-1007.

United States Bankruptcy Court, W.D. Texas, Austin Division.

March 6, 2009.

COPYRIGHT MATERIAL OMITTED

B. Weldon Ponder, Jr., Austin, TX, for Debtor.

MEMORANDUM OPINION

CRAIG A. GARGOTTA, Bankruptcy Judge.

This is the decision of the Court after a bench trial held December 11, 2008. This proceeding arises in a case referred to this Court by the Standing Order of Reference entered in this District and is determined to be a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A)(matters concerning administration of the estate) and (O)(determine an interest of the bankruptcy estate). The Court is authorized to enter a final judgment in this proceeding.

Defendant Chapter 13 Trustee's Exhibits 1-27 were admitted without objection, and Plaintiff's Exhibits 1-24 were admitted without objection. Further, during the course of trial, Trustee's Exhibits 28, 29, and 30 were admitted. A number of the exhibits for both Plaintiff and the Chapter 13 Trustee are the same documents. Documents referred to with a "T" and a number are the Trustee's exhibits.

Plaintiff Diana Bledsoe Douglass (hereinafter Plaintiff), Debtor/Defendant Clark Douglass (hereinafter Debtor), and Zia Jackson (a friend of Plaintiff) testified. In reaching its determinations, the Court considered the demeanor and credibility of all witnesses and all exhibits admitted. The Court also considered the oral arguments of counsel and trial briefs.

At issue is whether Plaintiff's payment of $75,000 as a down payment for the purchase of a home at 370 Lone Man Creek, Wimberley, Texas by both Plaintiff Diana Douglass and Debtor/Defendant Clark Douglass was in the form of a gift and thus should be paid to her as her separate property out of the home sales proceeds or whether the home sales proceeds are burdened with a constructive trust or equitable lien in favor of Plaintiff to the extent of $75,000. The Court finds that the $75,000 payment was a gift, and Plaintiff is not entitled to be paid $75,000 out of the sales proceeds. Additionally, Plaintiff does not prevail on either of her alternate claims for relief, in that she is not entitled to benefit from a constructive trust or equitable lien placed upon the sales proceeds to the extent of $75,000. The Court will grant a take nothing judgment against Plaintiff.

The following constitutes the Court's findings of fact and conclusions of law in accordance with Federal Rule of Bankruptcy Procedure 7052.

Findings of Fact

A number of these facts have been previously adduced in connection with the Court's ruling on the Chapter 13 Trustee's Motion to Dismiss. The following are facts which are agreed or appear from the record of this case:

1. Plaintiff and Debtor married in 1999. Plaintiff owned as separate property a residence in Willis, Texas prior to her marriage to Debtor. The residence had been purchased from the proceeds of a personal injury lawsuit arising from the death of Plaintiff's former husband.

2. On or about October 7, 2000, Debtor and Plaintiff executed a contract to purchase the property at 370 Lone Man Creek for $185,000 (the "Property"). Plaintiff and Debtor leased and lived in the property before they purchased it. They moved into the property in October 2000.

3. Debtor individually applied for financing for the property. In connection with the financing, the lender required a gift letter from Plaintiff to show that Debtor had no payment obligations to Plaintiff for the down payment money she provided.

4. In late December 2000 or early January 2001, Debtor and Plaintiff learned that the seller, Michael Frederick, was in danger of losing the Property through a possible foreclosure.

5. On or about January 10, 2001, Plaintiff paid $75,000 to Mr. Frederick as the down payment on the home. This down payment money lessened the loan amount needed to fund the purchase of the Property. The loan signed by Debtor was in the amount of $129,000.

6. Plaintiff signed two versions of a gift letter. The letters differ only in the amounts reflected on them as being gifted, the first shows $85,000 and is dated January 9, 2001, and the second shows $75,000 and is dated January 12, 2001. The words "will give" instead of "have given" the money are circled on the letters, with this text making sense for the first letter dated January 9, 2001 and being prior to the money being paid on January 10, 2001, but incorrect for the second letter dated January 12, 2001. Obviously the amount of the money changed to decrease by $10,000, thus the likely need for a second letter, and the wording was not changed to exactly match the circumstances.

7. On February 14, 2001, Debtor closed on the purchase of the Property. The underlying note was subsequently transferred to Defendant Chase Manhattan Mortgage Corporation.

8. Prior to Debtor's bankruptcy, in October 2003, Debtor and Plaintiff moved out of the home due to toxic fumes emitted by construction materials used in the house and lived elsewhere without acquiring another permanent residence. In September 2004, Plaintiff and Debtor sued the seller for damages relating to a diminished value to the house as well as for Plaintiff's health issues caused by exposure to the toxic fumes. They settled for monetary damages sometime in December 2006.

9. On May 4, 2004, Clark Douglass filed for Chapter 13 bankruptcy to prevent a foreclosure of the Property. Plaintiff and Debtor moved back into the Property but continuing marital troubles caused Debtor to later move out.

10. Plaintiff was not scheduled as a creditor in the bankruptcy case. She did not file a proof of claim but she was aware of Debtor's bankruptcy filing, and she attended Debtor's section 341 meeting of creditors.

11. Debtor filed an original and amended plan in this case. Neither version of the plan provided for the sale of the home nor did either plan list Plaintiff as a creditor in the certificate of service.

12. In his schedules filed in June 2004, Debtor did not claim the property as exempt and, therefore, it was property of the estate. Debtor claimed as exempt under 11 U.S.C. § 522(d)(5) any claims, other than personal injury claims, that he might have against the seller of the home. He also claimed as exempt under 11 U.S.C. § 522(d)(11)(D) all personal injury claims he might have against the seller of the home (with this exemption specifically stating that it did not include any personal injury claims of Plaintiff). These exemptions were allowed.

13. The amended plan was confirmed on March 23, 2005. Again, the amended plan did not provide for the sale of the 370 Lone Man Creek Property.

14. On November 16, 2007, Debtor filed a motion to sell the Property to third-party buyers for $222,500, asserting that the bankruptcy estate was the fee simple owner of the Property and that the sales proceeds would pay all allowed claims in the case. The motion asserted that Plaintiff refused to sign the sales contract unless she was assured she would receive her $75,000 and asked the Court to allow the sale to go forward despite Plaintiff's actions. At that point in the bankruptcy case, November 23, 2007, Plaintiff appeared through counsel by filing a response to the motion to sell. On November 29, 2007, the Court signed an agreed order which approved the sale, obtained Plaintiff's agreement to move from the home, and approved a payment to Plaintiff of $10,000 of the sales proceeds and any excess federal income taxes paid by Plaintiff and Debtor for tax year 2006 to help defray her costs of moving from the house, plus she retained the right to pursue her other claim to sales proceeds. All of the remaining sales proceeds, after the payment of all usual costs of sale, were paid to the Trustee to hold pending the outcome of this litigation. Debtor had also filed a motion to compel Plaintiff to turnover and vacate the Property, and this motion was resolved at the same time by an agreed order with similar terms.

The following facts were adduced at trial.

15. The Court finds that Plaintiff did sign both versions of the gift letters. Although Plaintiff insists that she does not recall signing the gift letters, Plaintiff acknowledged that her signature is on both of the gift letters, and she was the writer who put her address and phone number on these gift letters. The Court finds that Debtor's testimony corroborates what happened in that Plaintiff was required to sign a series of documents in connection with the closing of the Lone Man Creek Property and may have forgotten that she signed the gift letters.

16. The Court does not find credible Plaintiff's recall of the gift letters or of their effect on her money. The Court is not persuaded that Plaintiff did not know what she was doing when she signed the gift letters. This finding is based on her testimony and several documents. First, Plaintiff knew that she was paying $75,000 to save the home from foreclosure because she and Debtor wanted to purchase the home (Tr.-1). Had Plaintiff wanted to specifically exclude the money from being a gift, she could have said so in the addendum to the real estate contract. Second, the gift letters, appearing to be form documents, are titled "gift letters" and their text clearly state that the funds were a bona fide gift from a person not otherwise connected to the sale and who had no expectation for repayment. (Tr. 3 and 4). Third, via letter, the lender informed Debtor on November 10, 2000 that in order to complete the documentation for the loan, the lender needed the "Gift of the down payment from your wife (sale of her home)." (Tr.-5). Debtor responded by sending via fax to the lender's representative, along with other required documentation, a completed copy of the gift letter....