In re Felsner, Civ.No. 06-13992-DT.
| Decision Date | 18 January 2007 |
| Docket Number | Adversary No. 04-5142-SWR.,Civ.No. 06-13992-DT.,Bankruptcy No. 02-71116-SWR. |
| Citation | 359 B.R. 842 |
| Parties | In re Darrin B. FELSNER, Debtor. Sheila Solomon, Trustee, Appellant, v. Michelle Middleton and Robert Fellmy, Appellees. |
| Court | U.S. District Court — Eastern District of Michigan |
Marshall D. Schultz, Southfield, MI, for Debtor.
In this case, Appellees Michelle Middleton and Robert Fellmy resisted the Trustee's attempt to avoid a certain transfer by petitioning the bankruptcy court to judicially sanction a deceptive, and possibly felonious, real estate purchase plan in which Middleton and Debtor Darrin Felsner engaged. The bankruptcy court agreed with Appellees in an August 22, 2006 "Order Regarding Cross Motions for Summary Judgment" and Appellant Trustee timely filed her "Notice of Appeal" on September 5, 2006.
Middleton was the beneficiary of the deception she perpetrated on a lender in the course of the purchase by Felsner, and subsequent transfer to her, of certain real estate in Florida. The misrepresentation arose from his use of her money-he had none-and her use of his good credit-hers was poor-while falsely asserting that down payment money had been irrevocably gifted to Felsner.
The court has reviewed the record and the briefs in this matter and heard argument on the motion on January 10, 2007. For the reasons stated below, this court will enforce the terms of the gift letter Middleton falsely signed as she cannot now equitably deny its impact. The bankruptcy court's judgment was error, and will be reversed.
On August 22, 2006, the United States Bankruptcy Court for the Eastern District of Michigan granted Appellees' motion for summary judgment and denied Appellant's motion for summary judgment. The parties agree that Appellant filed a timely notice of appeal pursuant to Bankruptcy Rule 8004, and this court has jurisdiction over Appellant's appeal of the August 22, 2006 order pursuant to 28 U.S.C. § 158(a).
Under 28 U.S.C. § 158, the court has jurisdiction over appeals from final orders of the bankruptcy court. Specifically, 28 U.S.C. § 158 states in relevant part:
(a) The district courts of the United States shall have jurisdiction to hear appeals
(1) from final judgments, orders, and decrees;
. . . . .
(3) with leave of the court, from other interlocutory orders and decrees; of bankruptcy judges entered in cases and proceedings referred to the bankruptcy judges under section 157 of this title.
A final order of a bankruptcy court may be appealed as of right under § 158(a)(1). Belfance v. Black River Petroleum, Inc. (In re Hess), 209 B.R. 79, 80 (6th Cir. BAP 1997).
In reviewing a bankruptcy appeal, the district court must accept as correct the bankruptcy court's findings of fact, unless they are clearly erroneous. Fed. Rules Bankr.Proc. R. 8013; see also In re Caldwell, 851 F.2d 852, 857 (6th Cir.1988). The bankruptcy judge's conclusions of law, however; are reviewed de novo. Id. at 857; Heights Cmty. Congress v. Hilltop Realty, Inc., 774 F.2d 135, 140 (6th Cir. 1985). An order granting summary judgment is such a question of law to be reviewed de novo. Myers v. IRS (In re Myers), 216 B.R. 402 (6th Cir. BAP 1998); In re Batie, 995 F.2d 85, 88 (6th Cir.1993). The court therefore reviews the bankruptcy court's August 22, 2006 order denying Appellant's and granting Appellees' motion for summary judgment de novo.
Federal Rule of Civil Procedure 56, which governs summary judgment motions, provides, in part, that:
[t]he judgment sought shall be rendered forthwith 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.
Fed.R.Civ.P. 56(c). The moving party has the burden of demonstrating that there is no genuine issue as to any material fact, and summary judgment is to be entered if the evidence is such that a reasonable jury could find only for the moving party. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).
"[T]here is no issue for trial unless there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party." Anderson, 477 U.S. at 250, 106 S.Ct. 2505. In assessing a summary judgment motion, the court must examine any pleadings, depositions, answers to interrogatories, admissions, and affidavits in a light that is most favorable to the nonmoving party. Fed.R.Civ.P. 56(c); see United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993, 8 L.Ed.2d 176 (1962).
The facts involved in this dispute are uncontested. In early 2001, Felsner and Middleton, who resided together in Middleton's home in Mt. Clemens, Michigan, decided to move to Florida. Accordingly, Middleton sold her Michigan home for $175,000 on July 18, 2001, receiving $137,221.40 in net proceeds. (Middleton Aff. at ¶ 2, Appellees' Ex. C.) In her affidavit, Middleton affirmed that she sold her Michigan home with the "intent to use the sale proceeds for a portion of the price of a new home in Florida." (Id.) Due to her bad credit, Middleton was not able to secure a mortgage for the Florida property (the "Property") she wished to purchase. (Id. at ¶ 4.) Middleton and Felsner sought financing as co-owners of the Property, but were refused. Felsner, on the other hand, did have sufficient credit to obtain a mortgage for the home in his name alone. (Middleton Aff. at ¶ 5, Appellee's Ex. C.)
Middleton and Felsner testified that to enable Middleton to acquire the Property despite her bad credit, they accepted the suggestion of a real estate agent that Middleton utilize a "gift letter," transferring the proceeds of her home to Felsner, who would use it as a down payment to buy the Property in his name alone. He would subsequently quit-claim the property to Middleton. (Id.) Middleton and Felsner signed the gift letter to effectuate the real estate agent's plan. (Id.) Felsner admitted that, to his knowledge, his real estate agent did not inform the mortgage company about their plan to use his credit to purchase the Property on Middleton's behalf. Felsner further admitted that he did not tell the mortgage company of his intention to immediately quit claim the deed to Middleton, despite his knowledge that the mortgage contract stated the property subject to mortgage was not transferrable. (Id.) Felsner agreed with the statement that their plan "was basically this wonderful idea to coerce the mortgage company to give [me] the mortgage to buy the piece of property because with [Middleton] on it [we] weren't going to get the deal done." (Id. at 45.)
Consistent with their plan, Felsner represented to the mortgage company at the closing that the $90,000 down payment was gifted to him by Middleton. (Id. at 59.) The gift letter, a preprinted form generally consistent with standard gift letter forms used throughout the mortgage industry, indicated that the money was to be made payable directly to the title company, recited that Middleton would give Felsner $90,000 towards the purchase of the Property, and the gift "will be given in good faith and repayment of such gift is not required to be paid back [sic]." (Gift Letter, Appellant's Ex. I.) Middleton's and Felsner's signatures on the letter appear directly under a "Warning" section, which states that
Section 1010 of Title 18, U.S.C. "Department of Housing and Urban Development transactions", provides "whoever for the purpose of influencing in any way the action of such department . . . makes, passes, alters, or publishes any statement, knowing the same to be false shall be fined not more than $5,000.00 or imprisoned not more than 2 years or both."
(Id.) Both the real estate agent and the representative of the title company, which was the closing agent, were present and, according to Middleton and Felsner, were both aware of the "straw man" false-purchase arrangement.
Two days after the closing, Felsner went to the bank and signed the quit claim deed that transferred the Property to Middleton. (Id. at 67.) The quit claim deed recites that Felsner "received" $90,589.59 in consideration for transferring the interest to Middleton. (Quitclaim Deed, Appellees' Ex. J.) In reality, however, according to Felsner's testimony, he received nothing in return for transferring the Property to Middleton via quit claim deed. Felsner agreed that he "believed that [his] purchase of the property and conveyance back to [Middleton] was simply an accommodation to her so that she could buy this house given her credit condition," (id. at 61) and that his role was the straw man in the transaction, (id. at 62).
Although Felsner and Middleton's relationship soured and they both moved back to Michigan independently soon thereafter, the Property remained in Felsner's name for a year and a half. The Property was rented, and Middleton did not file the quit claim deed until September 6, 2002, concurrent with the time it was to be transferred to her father. (Id. at 50.) In the meanwhile, Felsner had paid the mortgage out of the rental income the Property produced. (Id. at 35-36.) When Middleton evicted the tenants, the income stream stopped. (Id. at 34.) Felsner was unable to continue paying the mortgage, and filed a Chapter 13 bankruptcy petition. (Id.) To avoid foreclosure, Fellmy, Middleton's father, assumed the mortgage in September...
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