In re Faires

• Court: U.S. Bankruptcy Court — District of Colorado
• Writing for the Court: SIDNEY B. BROOKS
• Citation: In re Faires, 123 B.R. 397 (Bankr. Colo. 1991)
• Decision Date: 22 January 1991
• Docket Number: Bankruptcy No. 90-B-05655-C,Adv. No. 90-1154-SBB.
• Parties: In re Jack FAIRES, Debtor. EAST PLAINS DEVELOPMENT CORPORATION, Plaintiff, v. Dennis W. KING, Trustee; Jack Faires; and Citizens Bank of Westminster, Defendants.

123 B.R. 397 (1991)

In re Jack FAIRES, Debtor EAST PLAINS DEVELOPMENT CORPORATION, Plaintiff, v. Dennis W. KING, Trustee; Jack Faires; and Citizens Bank of Westminster, Defendants.

Bankruptcy No. 90-B-05655-C, Adv. No. 90-1154-SBB.

United States Bankruptcy Court, D. Colorado.

January 22, 1991.

R. Antonio Lucero, Denver, Colo., for plaintiff, East Plains Development Corp.

Cipriano Griego, Denver, Colo., for debtor/defendant, Jack Faires.

Kevin Haight, Denver, Colo., for defendant, Citizens Bank of Westminster.

MEMORANDUM OPINION AND ORDER

SIDNEY B. BROOKS, Bankruptcy Judge.

THIS MATTER comes before the Court on Plaintiff's Motion for Default Judgment filed September 24, 1990, Defendant Citizens Bank of Westminster's Objection thereto filed October 5, 1990, Bank's Motion for Summary Judgment filed November 21, 1990, Plaintiff's Objection to Bank's Motion for Summary Judgment filed December 5, 1990, and Bank's Reply to Plaintiff's Objection to Motion for Summary Judgment filed December 14, 1990. The Court, has fully reviewed the file, pleadings, and memoranda.

The general issue before the Court is a determination of legal title to property which was transferred between, or among, (1) Jack Faires, the Chapter 7 Debtor and Defendant in this action, (2) a closely-held and related corporate entity, the Plaintiff, East Plains Development Corporation ("Plaintiff" or "EPDC"), and (3) the Debtor's son, James Faires, prior to this, Debtor's second, bankruptcy case. Plaintiff filed the Complaint in this action claiming title to certain property held by the Trustee and also claimed by a creditor of the Debtor, Defendant and intervenor, Citizens Bank of Westminster ("Bank"). EPDC claims title, requests turnover of the property and, in effect, asks for declaratory judgment on the parties' rights and title to the vagabond property.

The Court concludes that, based on the doctrine of res judicata, the Debtor transferred property, pre-petition, to hinder, delay or defraud creditors and, consequently, title to the subject property lies with the Trustee. The Court further concludes that an award of attorney's fees in favor of the Bank, as sanctions against the Plaintiff, is required and proper pursuant to B.R. 7011 and Rule 11, F.R.Civ.P.

I. FACTUAL BACKGROUND.

The following is a chronology of events leading up to the filing of the instant adversary proceeding:

August 12, 1985:      Debtor executed a promissory note in favor of the Bank or
                                      its predecessor-in-interest
                Sometime thereafter:  The promissory note fell into default
                August, 1986:         Debtor filed a Chapter 11 Bankruptcy Petition (Case No
                                      86-B-06123-M).
                September 24, 1987:   Debtor's Chapter 11 case was dismissed by stipulation.
                September 29, 1987:   Plaintiff was incorporated in Colorado. Secretary of State
                                      records reveal the following officers and directors:
                                          President and Director — James Faires (Debtor's son).
                                          Treasurer and Director — Jeanne Faires (Debtor's daughter-in-law
                                              and James Faires' wife); and
                                          Director—Esther Faires (Debtor's wife).
                November 12, 1987:    Bank filed suit against Debtor on the 1985 promissory note
                                      in Adams County District Court, Civil Action No. 87-CV-2322.
                December 14, 1987:    Debtor conveyed* his ownership interests in the following
                                      assets to Plaintiff:
                                          1. Barth Motor Home (also referred to as an RV or
                                             Winnebago), VIN # S104RS00017; Colorado Title
                                             No. 12M546573;
                                          2. 1982 Freightliner Semi-Tractor, VIN
                                             # 1FUPYDYB6CP211535; Colorado Title No.
                                             12M530206; and
                                          3. Fruehauf End-Dump Trailer; VIN
                                             # 1H4D02729CF020901; Colorado Title No.
                                             12M529413.
                                      *The vehicles were allegedly conveyed in exchange for work
                                      done by James Faires during the course of the year during
                                      which Debtor was in Chapter 11. The Colorado state court
                                      indicated that the bankruptcy pleadings reveal that James
                                      Faires, through Jeanne Faires, was paid $3,600.00 per month
                                      on a draw account. The court was presented no evidence
                

                      regarding whether and when such a draw was available,
                                      whether and when those payments were made, and whether
                                      and how much work was performed by James Faires. (Transcript
                                      of April 20, 1990 hearing, at p. 5.)
                May 11, 1988:         Summary judgment was entered in favor of the Bank and
                                      against Debtor in 87-CV-2322 for $163,686.54 plus statutory
                                      interest after February 2, 1988.
                September 2, 1988:    Bank filed suit in state court against Debtor and Plaintiff
                                      under Colorado fraudulent conveyance law in Adams County
                                      District Court, Civil Action No. 88-CV-1811.
                April 20, 1990:       Following trial, judgment was entered in favor of the Bank
                                      and against Debtor and Plaintiff in 88-CV-1811. The Court
                                      ordered the reinstatement of Debtor's name to the titles of
                                      the vehicles. The Court found the previous title transfer
                                      void as fraudulently made to avoid attachment by Bank.
                                      The judgment was self-executing and was not appealed.1
                May 2, 1990:          By Bill of Sale, Plaintiff reconveyed the vehicles to Debtor.
                May 4, 1990:          Debtor, Jack Faires, filed a Chapter 7 Bankruptcy Petition
                                      (90-B-05655-C). On page two of his Statement of Financial
                                      Affairs for Debtor Not Engaged in Business, he states in
                                      regard to the Bill of Sale, "Debtor denies that he has any
                                      interest whatsoever in said property and disputes any claim
                                      that he does."
                July 30, 1990:        Plaintiff filed the present "Complaint to Determine Ownership
                                      and to Reclaim Property," alleging that the Trustee is
                                      holding the three vehicles "against the lawful ownership
                                      interest" of Plaintiff and requesting that the Court order the
                                      immediate release of the vehicles to Plaintiff (90-1154-SBB).
                August 7, 1990:       Without knowledge of Plaintiff's action, the Bank filed a
                                      Complaint requesting denial of discharge (90-1195-PAC).
                

Plaintiff's motion to consolidate the two adversary proceedings was denied (November 7, 1990) and the Bank was given leave to intervene in the present proceeding (November 7, 1990). Bank filed its Answer on November 16, 1990 generally denying that any ownership interest in the vehicles lies in Plaintiff and set forth Rule 12(b)(6), F.R. Civ.P., res judicata and lack of consideration as affirmative defenses.

The predicate motions for this Opinion are:

1. Plaintiff\'s Motion for Default Judgment filed September 24, 1990, based upon Debtor/Defendant\'s failure to answer or otherwise respond.² Bank objected on October 5, 1990 based upon its then outstanding motion for leave to intervene; and

2. Bank\'s Motion for Summary Judgment filed November 21, 1990. Plaintiff objected on December 5, 1990 and Bank replied on December 14, 1990.

II. DEFAULT JUDGMENT.

The Bank has been allowed to intervene as a Defendant pursuant to Order of Court entered November 7, 1990 and has timely answered. The Motion for Default Judgment cannot be granted against the original Defendants without adversely affecting Bank's rights in this case. Pleadings filed are timely and proper. The Motion for Default Judgment shall be denied.

III. SUMMARY JUDGMENT.

This Court must determine whether any genuine issue of material fact exists. See, e.g., R-G Denver, Ltd. v. First City Holdings of Colorado, Inc., 789 F.2d 1469, 1471 (10th Cir.1986); United States for Use of Mobile Premix Concrete, Inc. v. Santa Fe Engineers, Inc., 515 F.Supp. 512, 514 (D.Colo.1981). In the present case, the only factual³ issue is: Who owned the vehicles at the time the Debtor's Petition was filed? The intervenor, Bank, argues that res judicata applies to resolve the issue — that the Bankruptcy Court is bound by the state court decision voiding the Debtor's transfers to EPDC — and that summary judgment in favor of the estate/Trustee is, therefore, proper.

A. Res Judicata.⁴

Res judicata ensures the finality of decisions. Under res judicata, "a final judgment on the merits bars further claims by parties or their privies based on the same cause of action." Montana v. U.S., 440 U.S. 147, 153, 99 S.Ct. 970, 973, 59 L.Ed.2d 210 (1979). It prevents litigation of all grounds for, or defenses to, recovery that were previously available to the parties, regardless of whether they were asserted or determined in the prior proceeding. Chicot County Drainage District v. Baxter State Bank, 308 U.S. 371, 378, 60 S.Ct. 317, 320, 84 L.Ed. 329, rehearing denied, 309 U.S. 695, 60 S.Ct. 581, 84 L.Ed. 1035 (1940). "Res judicata thus encourages reliance on judicial decisions, bars vexatious litigation, and frees the courts to resolve other disputes." Brown v. Felsen, 442 U.S. 127, 131, 99 S.Ct. 2205, 2209, 60 L.Ed.2d 767 (1979). "Because res judicata may govern grounds and defenses not previously litigated, . . . it blockades unexplored paths that may lead to truth. . . . It therefore is to be invoked only after careful inquiry." Id., at 132, 99 S.Ct. at 2210.

The doctrine of res judicata stands for the proposition that "a judgment rendered by a court of competent...