In re Emerson

• Decision Date: 19 April 1999
• Docket Number: 97-1095-JMD.,Bankruptcy No. 97-10318-JMD. Adversary No. 99-1006-JMD
• Citation: 235 BR 702
• Parties: In re Alan D. EMERSON and Brenda E. Emerson, Debtors. Jeffrey A. Schreiber, Chapter 7 Trustee, Plaintiff, v. William H. Stephenson and John W. Stephenson, Defendants.
• Court: U.S. Bankruptcy Court — District of New Hampshire

235 B.R. 702 (1999)

In re Alan D. EMERSON and Brenda E. Emerson, Debtors Jeffrey A. Schreiber, Chapter 7 Trustee, Plaintiff, v. William H. Stephenson and John W. Stephenson, Defendants.

Bankruptcy No. 97-10318-JMD. Adversary Nos. 99-1006-JMD, 97-1095-JMD.

United States Bankruptcy Court, D. New Hampshire.

April 19, 1999.

COPYRIGHT MATERIAL OMITTED

Jeffrey A. Schreiber, Randall L. Pratt, Schreiber & Associates, P.C., Danvers, MA, for Jeffrey A. Schreiber, Chapter 7 Trustee.

John A. Rogers, Meredith, NH, William H. Stephenson and John W. Stephenson.

MEMORANDUM OPINION AND ORDER

J. MICHAEL DEASY, Bankruptcy Judge.

I. INTRODUCTION

Alan Emerson and his wife Brenda Emerson (collectively the "Debtors") filed Chapter 7 bankruptcy on January 31, 1997. Jeffrey Schreiber, the Chapter 7 Trustee (the "Trustee"), brought suit against the Debtors seeking to deny the Debtors their discharge under 11 U.S.C. § 727 (Adv. No. 97-1095-JMD). The Trustee also brought suit against John Stephenson and his son William Stephenson (collectively the "Stephensons") seeking (1) to recover a 1978 Piper Seneca aircraft (the "Seneca") transferred by Robert Swain to William Stephenson on or about August 6, 1996; (2) to recover a Piper Warrior aircraft (the "Warrior") transferred by Alan Emerson to John Stephenson on or about October 21, 1996; (3) to avoid a security interest in Alan Emerson's inventory, equipment, accounts, and general intangibles granted to John Stephenson in September 1996; and (4) to avoid an identical security interest granted to William Stephenson in September 1996 (Adv. No. 99-1006) (the "Stephenson Complaint"). The two adversary proceedings have been consolidated for trial.

In Count I of the Stephenson Complaint, the Trustee seeks to avoid all four transfers pursuant to 11 U.S.C. § 547, the Bankruptcy Code's preferential transfer provision. In Count II, the Trustee seeks to avoid all four transfers pursuant to 11 U.S.C. § 548, one of the Bankruptcy Code's fraudulent transfer statutes. In Count III, the Trustee seeks to avoid all four transfers pursuant to 11 U.S.C. § 544 and New Hampshire RSA 545-A:4 and 5, the state fraudulent transfer provisions.

The Stephensons have filed a motion for summary judgment. In it they argue that they are entitled to summary judgment against the Trustee on his claims under 11 U.S.C. § 547 in Count I and under 11 U.S.C. § 544 and RSA 545-A:5(II) in Count III because the Stephensons are not insiders within the meaning of 11 U.S.C. § 101(31) or RSA 545-A:1(VII) and therefore the transfers are not preferential or fraudulent under 11 U.S.C. § 547 or RSA 545-A:5(II). They also argue that they are entitled to summary judgment on the Trustee's claim under 11 U.S.C. § 544 and RSA 545-A:5(I) in Count III because (1) the Trustee has failed to offer evidence establishing a transfer by the Debtors with regard to the Seneca; (2) the Trustee has failed to offer evidence establishing the lack of a security interest in the Warrior or of John Stephenson's efforts to foreclose that interest; and (3) the Trustee has failed to offer evidence establishing the lack of "reasonably equivalent value" with regard to the UCC-1 liens. The Stephensons further argue that they are entitled to summary judgment on the claims under 11 U.S.C. § 548 in Count II and under 11 U.S.C. § 544 and RSA 545-A:4 in Count III because (1) the Trustee cannot establish that the Debtors had an "interest" or "rights" in the Seneca; (2) the Trustee cannot establish that the Debtors had an "interest" or "rights" in the Warrior for which the Debtors received "less than a reasonably equivalent value" upon transfer of the airplane; and (3) the Trustee cannot prove that the Debtors had an "interest" or "rights" in the UCC-1 collateral for which the Debtors received "less than a reasonably equivalent value" when they granted security interests to the Stephensons.

This Court has jurisdiction of the subject matter and the parties pursuant to 28 U.S.C. §§ 1334 and 157(a) and the "Standing Order of Referral of Title 11 Proceedings to the United States Bankruptcy Court for the District of New Hampshire," dated January 18, 1994 (DiClerico, C.J.). This is a core proceeding in accordance with 28 U.S.C. § 157(b).

II. DISCUSSION

Under Rule 56(c) of the Federal Rules of Civil Procedure, made applicable to this proceeding by Rule 7056 of the Federal Rules of Bankruptcy Procedure, summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).

The plain language of Rule 56(c) mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party\'s case, and on which that party will bear the burden of proof at trial. In such a situation, there can be "no genuine issue as to any material fact," since a complete failure of proof concerning an essential element of the nonmoving party\'s case necessarily renders all other facts immaterial. The moving party is "entitled to judgment as a matter of law" because the nonmoving party has failed to make a sufficient showing on an essential element of her case with respect to which she has the burden of proof.

Id. at 322-23, 106 S.Ct. 2548; see Ralar Distribs., Inc. v. Rubbermaid, Inc. (In re Ralar Distribs., Inc.), 4 F.3d 62 (1st Cir. 1993) ("As to any essential factual element of its claim on which the nonmovant would bear the burden of proof at trial, its failure to come forward with sufficient evidence to generate a trial worthy issue warrants summary judgment for the moving party."). The burden on the moving party may be discharged by pointing out to the court that there is an absence of evidence to support the nonmoving party's case. Celotex, 477 U.S. at 325, 106 S.Ct. 2548.

A. Insider Status

A transfer of an interest of the debtor in property can be avoided as a preference under 11 U.S.C. § 547(b) if the transfer was made:

1. to or for the benefit of a creditor;

2. for or on account of an antecedent debt owed by the debtor before the transfer was made;

3. while the debtor was insolvent;

4. within ninety days before bankruptcy or between ninety days and one year before bankruptcy, if the transferee was an insider at the time of the transfer; and

5. the transfer enables the creditor to receive more than it would receive if the case were a case under Chapter 7 of the Code, the transfer had not been made, and the creditor received payment of its debt to the extent provided by the Code.

See 11 U.S.C. § 547(b); Collier on Bankruptcy ¶ 547.01 (15th rev. ed.1996). Since the transfers which the trustee alleges are preferential occurred more than 90 days before the bankruptcy, the Trustee cannot prevail on his claim under § 547 of the Bankruptcy Code unless he can show that the Stephensons are insiders.

Similarly, RSA 545-A:5(II) provides:

A transfer made by a debtor is fraudulent as to a creditor whose claim arose before the transfer was made if the transfer was made to an insider for an antecedent debt, the debtor was insolvent at that time, and the insider had reasonable cause to believe that the debtor was insolvent.

Emphasis added. Thus, under both the federal and state statutes, the Trustee must prove that the Stephensons were insiders.

The determination of whether a person is an insider is a question of fact, and it is one on which the Trustee bears the burden of proof at trial. Browning Interests v. Allison (In re Holloway), 955 F.2d 1008, 1014 (5th Cir.1992); Friedman v. Sheila Plotsky Brokers, Inc. (In re Friedman), 126 B.R. 63, 70 (BAP 9th Cir. 1991); Damir v. Trans-Pacific Nat'l Bank (In re Kong), 196 B.R. 167, 171 (N.D.Ca. 1996); Lingley v. Stuart Shaines, Inc. (In re Acme-Dunham Incorporated), 50 B.R. 734, 739 (D.Me.1985); see 11 U.S.C. § 547(g). Once the underlying facts are resolved, however, insider status ultimately is a question of law. Holloway, 955 F.2d at 1014. In appropriate cases, therefore, insider status can be resolved at the summary judgment stage. Miller v. Schuman (In re Schuman), 81 B.R. 583, 586 n. 1 (BAP 9th Cir. 1987); Kong, 196 B.R. at 171.

An "insider" of an individual debtor includes:

1. A relative of the debtor;

2. A partnership in which the debtor is a general partner;

3. A general partner of the debtor; or

4. A corporation of which the debtor is a director, officer, or person in control.

11 U.S.C. § 101(31); RSA 545-A:1(VII). The use of the word "includes" in the Bankruptcy Code definition of an insider is not a limiting term. Loftis v. Minar (In re Montanino), 15 B.R. 307, 310 (Bankr. D.N.J.1981). Courts have widely agreed that Congress did not intend to limit the classification of insiders to the statutory definition. See, e.g., Schuman, 81 B.R. at 586. The term insider is open-ended and not susceptible of precise specification. Acme-Dunham Incorporated, 50 B.R. at 739 (citing S.Rep. No. 95-989, 95th Cong.2d Sess., reprinted in 1978 U.S.C.C.A.N. 5787, 5810).

The legislative history of 11 U.S.C. § 101(31) states that "an insider is one who has a sufficiently close relationship with the debtor that his conduct is made subject to closer scrutiny than those dealing at arms length with the debtor." S.Rep. No. 989, 95th Cong., 2d Sess. 25 (1978); H. Rep. No. 595, 95th Cong., 1st Sess. 312 (1977). Cases that have considered this issue generally have focused on two factors in making the determination of whether a transferee is an insider: (1) the closeness of the relationship between the transferee and the debtor, and (2) whether the transactions between the transferee and the debtor were conducted at arm's length. Holloway, 955...