In re Giroux
| Decision Date | 17 December 2018 |
| Docket Number | Case No. 18-00071-GS |
| Parties | In re: JESSICA GIROUX, Debtor. |
| Court | U.S. Bankruptcy Court — District of Alaska |
The debtor, Jessica Giroux, objects to proof of claim 5 (Claim) under 11 U.S.C. § 502(d), alleging that certain pre-petition payments made to the claimants, Philip and Rebekah Johnston, constitute fraudulent and preferential transfers that have not been repaid. For the reasons set forth below, the court will sustain Jessica's objection in part and deny it in part.
Brad Giroux (Jessica's husband) and co-claimant Philip Johnston were partners in Alaska Fishing Adventures, LLC (AFA), operating a fishing lodge on the Nushagak River in Alaska.1 Their business relationship soured as Johnston came to believe Brad was mismanaging the business.2 Philip and his wife, Rebekah (who also worked for AFA), sued Brad and Jessica for various business-related infractions.3 The Johnstons obtained a state court judgment against the Girouxes.4 Liability for the principal amount of the judgment, pre- and post-judgment interest and punitivedamages was imposed solely on Brad Giroux.5 Jessica was held jointly and severally liable with Brad on the attorney's fees and costs awarded in the judgment.6
On March 7, 2018, Jessica commenced this chapter 13 bankruptcy case. Her schedules and statements revealed that she is employed as a doTERRA sales representative.7 Jessica also owns a related business, Essential Adventures, LLC.8 On May 1, 2018, the Johnstons filed the Claim in the unsecured amount of $102,282.06. An accounting attached to the Claim reflected multiple payments received by the Johnstons pre-petition.9 The Internal Revenue Service (IRS) also filed proof of claim 1-1, modified on March 16, 2018 to reflect a total debt of $174,530.10. Out of its claim, the IRS asserts that $122,338.84 is entitled to priority treatment under § 507(a)(8).
On July 26, 2018, Jessica filed her objection to the Claim (Objection).10 She asserts that her pre-petition payments to the Johnstons constitute preferential and fraudulent transfers avoidable under §§ 547 and 548, and recoverable under § 550. Jessica contends that the following payments were made to the Johnstons on their state court judgment via cashier's checks, pre-petition:
DATE TOTAL PAYMENT APPLIED TO BRAD'S DEBT APPLIED TO JOINT DEBT November 20, 2017
$1,750.00 $1,374.98 $375.02 November 28, 2017
$500.00 $392.85 $107.15 December 20, 2017
$2,250.00 $1,767.82 $482.18 January 20, 2018
$5,000.00 $3,928.50 $1,071.50 February 20, 2018
$5,000.00 $3,928.60 $1,071.40
Jessica argues that all payments attributed to Brad's judgment debt are avoidable under § 548 as constructive fraudulent transfers because the benefit for those payments flowed solely to Brad. Jessica contends that she did not receive any benefit from the payments. In the Objection, Jessica argues that these payments were allocated on a pro-rata basis between her and her husband's liability. She further posits that all payments applied to the joint portion of the judgment are avoidable under § 547 as preferential transfers because the proceeds of those payments, after avoidance by a hypothetical chapter 7 trustee, would flow to the Internal Revenue Service. Jessica alleges that the Johnstons have not repaid the pre-petition payments, and accordingly, requests that the Claim be disallowed in its entirety under § 502(d).
The Johnstons filed their response to the Objection on August 27, 2018.11 They make four brief arguments: (1) Jessica cannot object to the Claim prior to confirming a chapter 13 plan; (2) all pre-petition payments were received from Brad, not Jessica; (3) Jessica's arguments must be raised via adversary proceeding; and (4) the chapter 13 trustee must bring causes of action under §§ 547 and 548.
The court held its initial hearing on the Objection on August 29, 2018. At that hearing, the parties agreed to enter into settlement discussions before the Hon. Trish Brown.12 The court continued the hearing on the Objection to October 15, 2018, to give the parties time to negotiate a consensual resolution of their disputes.13 The negotiations were unsuccessful, and at the October 15, 2018 hearing the court heard live testimony from Jessica in support of the Objection.
Jessica testified that over several months she transferred funds from the Essential Adventures, LLC's business bank account to her joint personal account with Brad. Jessica would deposit Essential Adventure checks made payable to herself into the account and then obtain a cashier's check for payment to the Johnstons. Four of the five checks Jessica deposited into the joint checking account were immediately followed by payments to Philip Johnston that same day. The fifth payment was made after two deposits; the first of which was made two days prior to payment and the second was made the day of the payment. The payments to Phillip Johnston were made by cashier's check drawn from the joint account. The cashier's checks referenced "Bradley Giroux."14 Jessica further testified that the payments were made for the purpose of deferring any collection actions to be taken by the Johnstons against Jessica and Brad, while the parties attempted to negotiate a settlement.
After hearing argument from the parties at the October 15, 2018 hearing, the court took this matter under advisement. For the reasons set forth below, the court will grant Jessica's motion in part, and will temporarily disallow the Johnstons' proof of claim pending payment of the preferential transfers they received pre-petition.
Section 502(a) provides that "[a] claim or interest, proof of which is filed under section 501 of this title, is deemed allowed, unless a party in interest...objects." A party in interest may rebut the resulting presumption of allowance by presenting evidence 15 However, § 502(d) provides, in pertinent part, that "notwithstanding subsection[] a...the court shall disallow any claim of any entity...that is a transferee of a transfer avoidable under section...547 [or] 548...of this title, unless such entity or transferee has paid the amount...for which such entity or transferee is liable under section...550...of this title." In short, "§ 502(d) disallows the claims of creditors who have received avoidable transfers, unless the creditor relinquishes the transfer."16 Contrary to the Johnstons' argument that Jessica may not raise her objection until after her chapter 13 plan is confirmed, "[Federal] Rule [of Bankruptcy Procedure] 3007 does not provide a time limit for objections to proofs of claim[], and such an objection may be filed at any time."17
Under § 502(d), this court's initial inquiry is whether the Johnstons are transferees of avoidable transfers.18 Jessica alleges the payments she made to the Johnstons pre-petition constituteavoidable transfers under §§ 547 and 548. The Johnstons argue that such allegations must be brought via adversary proceeding. The court disagrees. "To assure the effectuation of the purpose of [§ 502(d)], a claim may be disallowed at least temporarily and for certain purposes, subject to reconsideration, simply upon the allegation of an avoidable transfer...this initial disallowance should be made by judicial determination, whether it be obtained in a claim objection or by some form of a declaratory judgment action."19 Accordingly, Jessica's Objection is sufficient to bring the issue before this court for adjudication, and the court will examine whether the transfers in question are avoidable under §§ 547 and 548.20
Under § 547(b), "a trustee may avoid any transfer of an interest of the debtor in property (1) to or for the benefit of a creditor; (2) for or on account of an antecedent debt owed by the debtor before such transfer was made; (3) made while the debtor was insolvent; (4) made (A) on or within 90 days before the date of the filing of the petition;...and (5) that enable[d] such creditor to receive more than such creditor would receive if (A) the case were a case under chapter 7 of this title; (B) the transfer had not been made; and (C) such creditor received payment of such debt to the extentprovided by the provisions of this title."21 The moving party must prove each element under § 547 by a preponderance of the evidence.22
First, this court must determine whether the funds received by the Johnstons constitute "transfers of an interest of the debtor in property." The Bankruptcy Code defines a "transfer" extremely broadly to include "each mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with - (i) property; or (ii) an interest in property."23 The monies used to pay the Johnstons came from Jessica via a joint checking account. This establishes a transfer of an interest of the debtor in property."24
Next, by virtue of filing their proof of claim in the debtor's case, the Johnstons concede that they are creditors of the debtor. The accounting attached to the Claim reflects that the Johnstons received payments on their claim. The debt for which the payments were made was an antecedent debt: the third amended state court judgment against Brad and Jessica was entered on September 11, 2017.25 The transfers at issue were all made on or after November 20, 2017. Ninety days before the date of the filing of the petition was December 7, 2017. Accordingly, the payments made to Phillip Johnston on December 20, 2017, January 20, 2018 and February 20, 2018 were all made within 90 days of the petition date. Also, according to...
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