In re Harper
| Decision Date | 04 October 1991 |
| Docket Number | Bankruptcy No. 2-88-02811,Adv. No. 2-90-0064. |
| Citation | 132 BR 349 |
| Parties | In re Sanford E. HARPER, Debtor. Larry E. STAATS, Trustee, Plaintiff, v. Carol A. HARPER, et al., Defendants. |
| Court | U.S. Bankruptcy Court — Southern District of Ohio |
Larry E. Staats, Columbus, Ohio, trustee.
Grady L. Pettigrew, Jr., Arter & Hadden, Columbus, Ohio, for defendants.
Charles M. Caldwell, Office of the U.S. Trustee, Columbus, Ohio, Asst. U.S. Trustee.
The Chapter 7 trustee, Larry E. Staats, commenced this adversary proceeding against the debtor and his wife (together, the "defendants") on March 14, 1990. By his complaint, the trustee seeks to set aside a transfer by the debtor to his wife of the debtor's interest in their residence. The trustee also requests declaratory relief prohibiting the debtor from exempting such interest from the bankruptcy estate. This matter was tried to the Court and taken under advisement on February 4, 1991.
The Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. § 1334(b) and the General Order of Reference entered in this judicial district. This is a core proceeding which the Court may hear and determine under 28 U.S.C. § 157(b)(2)(B), (F) and (H). The following opinion and order shall constitute the Court's findings of fact and conclusions of law.
On February 10, 1988, Sanford E. Harper, the debtor, executed a quitclaim deed by which he transferred to his wife, Carol Harper, an undivided one-half interest ("Interest") in their residence (the "Property"). The debtor retained his dower interest in the Property, and now claims such interest exempt from inclusion in the estate under Ohio Revised Code ("O.R.C.") § 2329.66(A)(1) (Anderson 1991). At the time of the transfer (the "Transfer"), Carol Harper, owner of the other undivided one-half interest in the Property, gave no monetary consideration to the debtor.
On or about February 9, 1990, the debtor signed and filed with the County Auditor, Franklin County, Ohio, a Statement of Reason For Exemption From Real Property Conveyance Fee (the "Statement"), representing therein that the Transfer was a gift between husband and wife and, thus, exempt from taxation under applicable law.
In February, 1988, Carol Harper applied for a home-equity loan from I.T.T. Financial Services ("ITT"). At the time of such application, the debtor, the former chief executive officer of a failed manufacturing company, was sporadically employed as a consultant and had been turned down previously by another financial institution for a home-equity loan. Due to this, the debtor did not apply with his wife for the ITT loan. The defendants state that the ITT loan was requested to pay college tuition and related expenses of their two children, as well as various household bills.
On February 23, 1988, ITT lent the sum of $62,000 ("Gross Proceeds") to Carol Harper, obtaining a second mortgage on the Property as security for the loan. As a condition to its making the loan, ITT required Carol Harper to satisfy certain existing debts to other creditors. Accordingly, upon issuance of the loan, and after deducting closing costs and recording fees, the following amounts were distributed directly from the Gross Proceeds to existing creditors:
Bank One $ 2,669.44
BancOhio National Bank—Visa
Card 1,270.35
BancOhio National Bank—Mastercard 2,182.96
Madison's 691.75
Dollar Savings 28,776.94
Grady L. Pettigrew 6,000.00
__________
TOTAL $43,591.44
The defendants state that the foregoing itemized debts were "family obligations."
The sum of $17,176.01 (the "Net Proceeds") remained for disbursement directly to Carol Harper. ITT issued the Net Proceeds to Carol Harper, who thereupon deposited such sum in a joint checking account she held with the debtor at TransOhio Savings Bank. The account, however, listed only Carol Harper's social security number. On March 10 and April 19, 1988, Carol Harper issued two checks on this account, in the amounts of $6,100 and $2,800, respectively, to the debtor. These two checks allegedly represented the debtor's one-half (50%) share of the Net Proceeds. These checks subsequently were redeposited by the debtor into the checking account. A portion of the proceeds was used later by the debtor to purchase an automobile.
The parties have stipulated that in 1987 and 1988 General Motors Acceptance Corporation, Huntington National Bank, Equal Opportunity Finance, Inc., and C.I.T. Sales Financing, Inc. commenced lawsuits against the defendants. It is stipulated further that as of June 30, 1986, a Lois Soloman held a judgment lien in the amount of $6,000 against the debtor. Soloman agreed to release her lien and claims in exchange for $3,000, paid on May 17, 1988, out of the $6,000 which had been paid to Grady Pettigrew, the debtor's counsel, from the Gross Proceeds. The remaining $3,000 was retained by Pettigrew as payment for legal fees incurred prior to and after the filing of the bankruptcy petition.
The parties have entered into the following written stipulations:
1. It is hereby stipulated by the Parties to this action that the value of the real estate, which is the subject of this action, i.e., 1442 Wilmore Drive, Columbus, Ohio, as of February 9, 1988, the date of transfer of Sanford E. Harper\'s interest to Carol A. Harper, was $97,000.00; and 2. It is further stipulated that as of February 9, 1988, the date of the above transfer of Sanford E. Harper\'s interest in the subject real estate to Carol A. Harper, that Sanford E. Harper was financially insolvent.
At the close of the trustee's case-in-chief, the defendants requested dismissal of this adversary proceeding pursuant to Rule 41(b) of the Federal Rules of Civil Procedure. Rule 41(b), made applicable to this proceeding by Fed.R.Bankr.P. 7041(b), provides in pertinent part as follows:
Upon such a motion, the court need not review the evidence in a light most favorable to the plaintiff. Rather, the court has a duty to take an unbiased view of all the evidence and determine for itself where the preponderance lies. See Emerson Elec. Co. v. Farmer, 427 F.2d 1082, 1084 (5th Cir.1970); Ellis v. Carter, 328 F.2d 573, 575 (9th Cir.1964); 9 Collier on Bankruptcy, Para. 7041.05, at 7041-9 (L. King, 15th ed. 1989). Absent a directive otherwise, a dismissal under Rule 41(b) is with prejudice and on the merits.
Based upon the reasons set forth herein, the debtor's motion for involuntary dismissal shall be granted in part and denied in part.
The trustee alleges in his third cause of action that the Transfer of the Interest constitutes a preference under § 547(b) and, thus, may be avoided. The trustee, however, abandoned this cause of action at trial. The defendants thereupon requested judgment on this claim. The defendants' request, being unopposed, was, and hereby is, granted by the Court.
The trustee's fourth cause of action alleges that the debtor received less than "a reasonable, equivalent value in exchange for said transfers and was insolvent on the date of such transfers." The Court presumes that the trustee's claim is a fraudulent transfer claim premised on § 548(a)(2), although this is not clear.
A § 548(a)(2) claim requires the trustee to prove that the debtor received less than a reasonably equivalent value in exchange for a transfer and that the debtor either was insolvent on the date of the transfer or became insolvent as a result of the transfer. 11 U.S.C. § 548(a)(2)(A) & (B). As the defendants have conceded that the debtor was insolvent on the date of the Transfer, the only issue is whether the debtor received less than a reasonably equivalent value in exchange for the Transfer. Transcript at 10.
To sustain his burden in attempting to prove that the debtor received less than a reasonably equivalent value in exchange for the Transfer, the trustee must do two things. First, the trustee must establish that the debtor, and not a third party, received the value of the transfer. See Klein v. Tabatchnick, 418 F.Supp. 1368, 1371 (S.D.N.Y.1976), aff'd in part, 610 F.2d 1043 (2d Cir.1979); Vadnais Lumber Supply, Inc. v. Byrne (In re Vadnais Lumber Supply), 100 B.R. 127, 136 (Bankr.D.Mass. 1989); Ohio Corrugating Co. v. Security Pacific Business Credit, Inc. (Matter of Ohio Corrugating Co.), 70 B.R. 920, 926-27 (Bankr.N.D.Ohio 1987). Second, the value received must pass a measurement test; all aspects of the transaction must be measured in order to determine the value of all the benefits and burdens to the debtor. Vadnais Lumber, 100 B.R. at 136 (citing Rubin v. Mfr. Hanover Trust Co., 661 F.2d 979 (2d Cir.1981)).
In support of their oral motion for an involuntary dismissal, the defendants assert that the trustee has failed to meet this burden of proof. Specifically, the defendants assert that the trustee has failed to demonstrate an absence of fair consideration. The defendants maintain that the trustee presented no evidence establishing the value of the Interest that actually was transferred by the debtor to his wife. According to the defendants, the record, at the conclusion of the trustee's case, contained only a stipulation as to the...
To continue reading
Request your trial