In re Edwards

• Court: U.S. Bankruptcy Court — Western District of Missouri
• Writing for the Court: Cynthia A. Norton
• Decision Date: 10 September 2013
• Docket Number: Case No. 09-31469
• Citation: In re Edwards, Case No. 09-31469 (Bankr. W.D. Mo. Sep 10, 2013)
• Parties: In Re: DOUGLAS & SAUNDRA EDWARDS, Debtors.

In Re: DOUGLAS & SAUNDRA EDWARDS, Debtors.

Case No. 09-31469

UNITED STATES BANKRUPTCY COURT WESTERN DISTRICT OF MISSOURI

SO ORDERED: September 10, 2013

ORDER DENYING OBJECTION TO CLAIM

On July 26, 2013, the Court heard opening statements and took evidence on the objection and amended objection (collectively, the "Objection") of the Debtors Douglas and Saundra Edwards (collectively, the "Edwards" or the "Debtors") to Claim No. 9 of Title Industry Assurance Company ("TIAC") and the response ("Response") of TIAC thereto. At the conclusion of the evidence, the Court heard closing arguments, and took the matter under advisement. After carefully reviewing the argument and evidence, the Court denies the Edwards' Objection, for the reasons set forth below.

Jurisdiction

This is a contested matter (Fed.R.Bankr.Proc. 9014) over which the Court has jurisdiction pursuant to 28 U.S.C. § 1334(b); 11 U.S.C. § 502. This is a core proceeding and the Court has authority to hear and determine the matter and enter a final judgment. 28 U.S.C. § 157(b)(2)(B).

Factual and Procedural Background

The following background was not discussed in detail at the hearing, but is based on the information in the record and in the published and unpublished opinions of the state and federal courts, and is set forth to give background and context to the Objection and Response and the Court's ruling, particularly in light of the highly convoluted nature of the state and bankruptcycourt proceedings giving rise to the current dispute. The following background does not constitute findings of fact, unless otherwise noted or excerpted from the record.

State Court Proceedings

The Edwards allege that, sometime in 2001, they innocently set about to build a small pond for their grandchildren. [Dk. 210]. Their downstream neighbor, R.G. Edmonson, Trustee of the Jewell Edmonson Testamentary Trust ("Edmonson"), sued them after the dam the Edwards constructed blocked a stream providing water to Edmonson's property. R.G. Edmonson, Trustee of the Jewell Edmonson Testamentary Trust v. Edwards, Case No. 39V010100452, Circuit Court of Barry County, Missouri (the "State Court Litigation").

On June 27, 2002, a Barry County, Missouri Circuit Court (the "State Court") entered judgment against the Edwards and in favor of Edmonson, enjoining the Edwards from maintaining the pond on their property, and awarding Edmonson nominal damages. The State Court also ordered the Edwards to pay a penalty of $50 per day to the extent they failed to "demolish, destroy or remove" the pond and restore the stream within 30 days.

The Edwards appealed the State Court judgment to the Missouri Court of Appeals, who affirmed. Edmonson v. Edwards, 111 S.W.3d 906 (Mo. App. S.D. 2003). The Missouri Court of Appeals held that Edmonson, as the lower riparian owner, was entitled to injunctive relief, and that such relief did not preclude an award of money damages, even though nominal. Id. at 910.

In 2004, the parties returned to state court, with Edmonson alleging the Edwards had failed to demolish the pond and the Edwards in turn seeking to dissolve the injunction. On March 16, 2004, the State Court ruled against the Edwards a second time, finding them in contempt of the State Court's previous judgment. The State Court entered another judgment against the Edwards in the amount of $26,850 in penalties ($50 per day from July 17, 2002 through March16, 2004), plus attorney fees of $1,800. The judgment of $26,850 was at some point apparently satisfied; the record is unclear about the nature and extent of Edmonson's subsequent execution attempts on this judgment, and what amounts the Edwards paid to Edmonson and when.

It is also unclear what else happened with the State Court Litigation in the intervening years during and after the Edwards' appeal. But on June 21, 2007, when the Edwards again asked the State Court to dissolve the injunction, the State Court again found the Edwards in contempt. The State Court entered a third judgment against the Edwards for penalties of a total of $59,500 ($50 per day from March 17, 2004, the day after the last judgment, through June 20, 2007 the day before the hearing). The State Court did, however, offer the Edwards an opportunity to purge themselves of contempt if they demolished the pond by July 20, 2007.

At a subsequent hearing on the Edwards' motion for new trial, the State Court on October 2, 2007 found that the Edwards had "substantially complied" with the June 21, 2007 judgment, by starting to drain - although not completely demolishing - the pond by the July 20, 2007 deadline. The State Court then entered a fourth judgment setting aside the $59,500 in previously ordered penalties, but nonetheless awarding Edmonson $13,569.33 in attorney fees and costs. Both the Edwards and Edmonson appealed.

The Missouri Court of Appeals, on April 3, 2009, reversed in part. Edmonson v. Edwards, 280 S.W.3d 752 (Mo. App. S.D. 2009). The Missouri Court of Appeals held that the State Court should not have set aside the $59,500 in penalties, and instead remanded for the State Court to determine when and if the Edwards had actually -- and not merely substantially -- complied with the original June 27, 2002 order to destroy the pond and, if so, to recalculate the penalties accordingly. The Court of Appeals also affirmed the State Court's award to Edmonson of his attorney fees and expenses.

On remand, the State Court in a fifth (or technically fourth?) judgment dated September 21, 2009 found that the Edwards were in contempt from January 17, 2004 until July 20, 2007 (when they apparently fully demolished the pond) and entered judgment in favor of Edmonson at $50 per day for that period, or a total of $63,950. The State Court denied Edmonson's request for additional attorney fees and expenses incurred in connection with the second appeal and in preparation for the hearing following remand, finding that such request was beyond the scope of the Court of Appeal's mandate. The Edwards apparently did not appeal from the September 21, 2009 judgment, rendering that judgment a final one.

The Transfer (or Transfers)

TIAC alleges that, in November 2004 (after the Edwards had lost the first state court appeal and the March 16, 2004 judgment of $26,850 had been entered), the Edwards transferred a piece of their Barry County real estate to their daughter (and perhaps husband). [Dk. 228]. According to TIAC, Stewart Abstract performed the abstracting work, conducted a closing, and issued a title policy, underwritten by Stewart Title Guaranty Company ("Stewart Title"). [Dk. 228]. Later, on August 6, 2007, shortly after the July 20, 2007 deadline the State Court had set for fully demolishing the pond, the Edwards transferred another piece of real estate to their daughter (and perhaps husband). [Exhibit No. 12]. Stewart Abstract also handled that closing and Stewart Title also underwrote this policy, according to TIAC. Assuming the date is accurate, this August 2007 transfer would have occurred after the June 21, 2007 judgment and the demolition of the pond but before both the Missouri Court of Appeals' reversal of the vacation of the $59,500 judgment and the State Court's October 2007 reinstatement of the judgment in the new amount of $63,950.

The Edwards assert that their transfers were innocent, and that Stewart (whether Stewart Abstract or Stewart Title - the Edwards do not distinguish) negligently failed to identify the State Court Litigation. The Edwards also assert there was no judgment against them at the time of either of the transfers. TIAC counters that the Edwards committed fraud against Stewart Abstract, the title company, by failing to disclose the State Court Litigation. TIAC also alleges that Edmonson had been attempting to enforce his judgment against the transferred properties, and that the transferee(s)/purchaser(s) made a claim against Stewart Title. TIAC states that, Stewart Title, to protect the interest of these insured(s)/transferee(s), settled its insured(s)' claim by paying $48,500 to Edmonson. Stewart Title in return took a partial assignment of the Edmonson judgment pursuant to a written assignment and subrogation agreement. As will be discussed below, Stewart Title later assigned its interest to TIAC.

The Bankruptcy Filing

The Edwards filed their Chapter 13 bankruptcy petition on December 4, 2009. At the time they filed, they owned in addition to other real estate a home and 83 acres in Barry County, Missouri, which they valued at $300,000 [Schedule A]. On Schedule D, the Edwards listed that the property was encumbered by a first deed of trust in favor of Chase Home Finance in the amount of $164,411. On their Schedule F, Debtors listed among other unsecured creditors a "judgment debt" that arose "September 21, 2009" to Edmonson, in the amount of $63,950. Since they were current on their mortgage, the Edwards' Chapter 13 Plan filed with the petition proposed to pay ongoing mortgage payments to Chase directly,¹ and to pay their other creditors 100% of their claims.

On December 31, 2009, Edmonson filed an objection to confirmation of the Edwards' plan [Dk. 16]. Specifically, Edmonson stated that he was the holder of a judgment lien in the amount of $104,799.41 that was secured by the Edwards' real property, and that his judgment lien was prior to the Chase deed of trust. Edmonson objected that the plan failed to properly pay his secured claim under 11 U.S.C. § 1325(a)(5). The Edwards, through their counsel at the time, responded that they intended to object to Edmonson's claim [Dk 20]. In the meantime, the Chapter 13 Trustee filed a motion to deny confirmation of the plan; the Edwards responded that confirmation issues would be resolved once their (intended) objection to the Edmonson claim was resolved. [Dk. 28].

Edmonson Claim Filing And Litigation, Including Appeals

Edmonson had filed a secured proof of claim [Claim No. 3] on December 30, 2009, in the amount of $104,799.41. The...