In re Gantz, 93-CV-0262-B.
| Decision Date | 13 January 1994 |
| Docket Number | No. 93-CV-0262-B.,93-CV-0262-B. |
| Parties | In re David Eugene GANTZ, Debtor. David Eugene GANTZ, Appellant, v. COLONIAL CENTRAL SAVINGS BANK, F.S.B.; Michael W. Guber; Judy L. Guber; Joseph A. Frates, Jr.; Barbara J. Hughes; and Keycorp Mortgage, Inc., Appellees. |
| Court | U.S. District Court — District of Wyoming |
COPYRIGHT MATERIAL OMITTED
Georg Jensen, Cheyenne, WY, for debtor/appellant.
Bruce N. Willoughby, Casper, WY, for Colonial Cent. Sav. Bank.
Don W. Riske, Cheyenne, WY, for Michael W. and Judy L. Guber.
Peter J. McNiff, Cheyenne, WY, for Frates, Hughes and Keycorp.
ORDER AFFIRMING THE BANKRUPTCY COURT'S GRANT OF SUMMARY JUDGMENT FOR APPELLEES AND DISMISSING THE ADVERSARY PROCEEDING
The above-entitled matter having come before this Court on Appellant's Appeal from the Order of the Bankruptcy Court Granting Appellees' Motion for Summary Judgment and Dismissing the Adversary Proceeding, and the Appellees' Oppositions, and the Court, having read the materials on file both in support of and in opposition thereto, having heard oral argument from the parties, and being fully advised in the premises, hereby FINDS and ORDERS as follows:
Factual Background
This case presents an interesting question of law, one of first impression within this circuit, on the issue of defining what constitutes "reasonably equivalent value" when a debtor seeks to set aside the sale of his personal residence after a public foreclosure sale pursuant to 11 U.S.C. § 548(a)(2)(A) (1988).
The essential facts in this case are not disputed. Appellant and his second wife1 jointly purchased a home in Cheyenne, Wyoming and executed a promissory note and a mortgage to Superior Mortgage Company ("Superior") in the amount of $75,350. Superior subsequently assigned its rights to the mortgage payments to appellee Colonial Savings Bank, F.S.B. ("Colonial"). Appellant and his second wife were later divorced, and pursuant to the terms of the divorce decree, appellant obtained the entire interest in the property.
Appellant subsequently became delinquent in his monthly mortgage payments to Colonial, and as a result, Colonial instituted foreclosure proceedings on March 10, 1992. Colonial purchased the property at the sale for $60,744 and received a sheriff's deed to the property. Appellant acknowledges that the foreclosure was conducted in accordance with the relevant Wyoming statutes,2 that all necessary procedures were followed and that the price paid for the property by Colonial was computed in reliance on the guidelines and price regulations of the United States Department of Housing and Urban Development.
On March 20, 1992, ten days after the foreclosure sale, appellee Michael Guber ("Guber"), a self-proclaimed entrepreneur, ordered a title commitment on the property. Over the next few days, Guber listed the property for sale and began marketing it. The parties do not dispute that Guber's actions in listing this property, in which he presently had no interest, were undertaken prior to the expiration of plaintiff's statutorily defined redemption period.3
On April 11, 1992, approximately one month into appellant's redemption period, Guber entered into a contract with appellees Hughes and Frates for the sale of this property for $74,500.4 This contract for sale was apparently negotiated at arms-length through a broker. The closing date for the sale of the property from Guber to Hughes and Frates was July 9, 1992. On that date, Colonial sold the property to Guber5 for the $60,744 that it paid for the property. Colonial then assigned the sheriff's deed that it received at the foreclosure sale to Guber who, now having obtained title to the property, closed the deal with Hughes and Frates and gave them a warranty deed. After the closing occurred, Guber and his present wife received a check for approximately $8,000, representing the net profit that was realized from the sale of the property.6
As a result of the March 10, 1992 foreclosure sale, instituted by Colonial because of appellant's failure to make the mortgage payments, appellant was faced with a deficiency of approximately $15,000 that was owed to Colonial, the assignee of the original mortgage. On March 3, 1993, fifty one weeks after the foreclosure sale to Colonial, appellant filed a chapter 11 proceeding because of his insolvency and this debt. He subsequently instituted an adversary proceeding in the bankruptcy court against the appellees seeking to avoid the transfer of his property, claiming that the foreclosure sale amounted to a fraudulent conveyance under § 548 because it was sold for less than a "reasonably equivalent value." 11 U.S.C. § 548(a)(2)(A) (1988).
Appellee Colonial filed a motion for summary judgment in the adversary proceeding, which was joined by all other appellees. After a hearing, the bankruptcy court granted the motion and entered judgment for the appellees, making specific findings of fact and conclusions of law in the process. The tenth finding of fact was that the $60,744 bid by Colonial at the foreclosure sale was in fact the reasonably equivalent value of the property, and the eleventh finding was that the sale was conducted in accordance with state law and was non-collusive. In its conclusions of law, the bankruptcy court simply stated that the plaintiff failed to carry his burden of proving that the property was sold for less than a reasonably equivalent value and that there were no genuine issues of material fact that precluded the entry of summary judgment. The bankruptcy court then dismissed the adversary proceeding.
It is this order of the bankruptcy court dismissing the adversary proceeding and granting summary judgment in favor of the appellees that forms the basis for this appeal.
This court exercises de novo review over the bankruptcy court's conclusions of law. See In re Mullet, 817 F.2d 677, 679 (10th Cir.1987). The bankruptcy court's findings of fact are, however, subject to more deferential review under the "clearly erroneous" standard. See Hall v. Vance, 887 F.2d 1041, 1043 (10th Cir.1989); In re Branding Iron Motel, 798 F.2d 396, 399 (10th Cir.1986); FED.R.BANKR.P. 8013. A finding of fact is clearly erroneous if, after reviewing the record, the reviewing court is left with the "definite and firm conviction that a mistake has been committed." In re Hart, 923 F.2d 1410, 1411 (10th Cir.1991) (citation omitted).
The starting point for the Court's analysis of this question is, of course, the language of the statute itself. See In re Bundles, 856 F.2d 815, 821 (7th Cir.1988); In re Lindsay, 98 B.R. 983, 989 (Bankr.S.D.Cal.1989). Section 548 provides, in relevant part, that:
11 U.S.C. § 548(a)(2)(A) (1988). This section of the bankruptcy code permits the debtor7 to set aside a transfer of property if: (1) the debtor had an interest in the property transferred; (2) the debtor was insolvent at the time of the transfer or became insolvent because of the transfer; (3) the transfer occurred within one year of the filing of the bankruptcy petition; and (4) the transfer was for less than a "reasonably equivalent value." See Bundles, 856 F.2d at 815-16; In re BFP, 974 F.2d 1144, 1147 (9th Cir.1992), cert. granted, ___ U.S. ___, 113 S.Ct. 2411, 124 L.Ed.2d 635 (1993).
In the present case, the parties have implicitly conceded the first three requirements, namely, that Gantz did have an interest in the property, that he became insolvent because of the transfer and that the transfer occurred within one year of the filing of Gantz's bankruptcy petition. Thus, the only issue presented by this appeal is whether Gantz, the debtor/appellant, received less than a "reasonably equivalent value" for the property in question.
As an initial matter, the responsibility for interpreting this phrase has been left to the judiciary because Congress chose not to define it in the bankruptcy code.8 See In re Morris Communications NC, Inc., 914 F.2d 458, 466 (4th Cir.1990). As a result, this Court is faced with a difficult task, one which has divided the numerous bankruptcy, district and circuit courts which have addressed this issue.
Three different lines of common law authority have developed over the years, each espousing a different interpretation of the phrase "reasonably equivalent value." The Court will begin its discussion with a review of these cases.
The first line of cases has evolved from the decision in Durrett v. Washington Nat'l Ins. Co., 621 F.2d 201 (5th Cir.1980). Durrett was decided under § 67(d) of the former bankruptcy code, 11 U.S.C. § 107(d), which used the phrase "fair consideration," rather than "reasonably equivalent value."9 In reversing the trial court's ruling that a sale price of 57.7% of the fair market value of the property was fair consideration, the Fifth Circuit stated that it had been unable to find any cases upholding a sale of property at less than 70% of the fair market value of the property.10 Id. at 203. The court's reference to 70% as a cutoff has led other courts and commentators to interpret that case as establishing a bright-line rule, the so-called "Durrett 70% rule." The Durrett rule implies that if the sale is for 70% or more of the market value, then it is reasonably equivalent value as a matter of law under § 548; if, however, the sale is for less than 70% of the market value, it is not reasonably equivalent value and the transfer can be avoided.11
Durrett has been criticized. One court...
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