In re Hill, Bankruptcy No. 90 B 09996

CourtUnited States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Northern District of Illinois
Citation156 BR 998
Docket NumberBankruptcy No. 90 B 09996,Adv. No. 93 A 00072.
PartiesIn re Vera M. HILL, Debtor. Leonard M. GROUPE, Trustee, Plaintiff, v. Vera M. HILL, Buy Right Investments, Doris M. Gunn and Wesav Mortgage Corp., Defendants.
Decision Date29 July 1993


Leonard M. Groupe, Bruce M. Katz, Groupe & Katz, Chicago, IL, Trustee of Chapter 7 Estate.

Carol Coplan, O'Brien, O'Rourke, Hogan & McNulty, Chicago, IL, for defendants Doris M. Gunn and Wesav Mortgage Corp.

Mitchell E. Jones, Vedder, Price, Kaufman & Kammholz, Chicago, IL, for defendant Buy Right Investments, Inc.


JOHN H. SQUIRES, Bankruptcy Judge.

This matter comes before the Court on the motion of Doris Gunn ("Gunn") and Wesav Mortgage Corp. ("Wesav") for summary judgment pursuant to Federal Rule of Civil Procedure 56, incorporated by reference in Federal Rule of Bankruptcy Procedure 7056 and on the cross-motion of Leonard M. Groupe, the trustee (the "Trustee") for summary judgment. For the reasons set forth herein, the Court having considered the pleadings, exhibits and affidavits, hereby grants the motion of Gunn and Wesav and denies the motion of the Trustee for summary judgment.


The Court has jurisdiction to entertain this matter pursuant to 28 U.S.C. § 1334 and General Rule 2.33(A) of the United States District Court for the Northern District of Illinois. This matter constitutes a core proceeding under 28 U.S.C. § 157(b)(2)(A), (E) and (O).


Many of the facts are undisputed. The Debtor filed a Chapter 13 petition and plan of reorganization on May 1, 1990. The plan was subsequently confirmed on July 24, 1990. Sometime thereafter, on April 1, 1992, the Debtor voluntarily converted the case to Chapter 7 pursuant to 11 U.S.C. § 1307(a). Subsequently, Leonard M. Groupe was appointed the Chapter 7 trustee (the "Trustee") on April 21, 1992.

At the time of the filing of the Chapter 13 petition, the Debtor owned property located at 12439 South Wentworth, Chicago, Illinois (the "Property"). On June 22, 1992, the Debtor conveyed the Property to Buy Right Investments, Inc. ("Buy Right") by giving Buy Right a quitclaim deed. Thereafter, the quitclaim deed was recorded with the Cook County Recorder of Deeds. Buy Right in turn conveyed the Property to Gunn by giving her a warranty deed for her payment of $49,500.00 on November 3, 1992. The warranty deed was recorded with the Cook County Recorder of Deeds on November 6, 1992. Wesav is the mortgage company who provided a loan secured by the mortgage from Gunn on the Property. Wesav's mortgage was recorded with the Cook County Recorder of Deeds on November 6, 1992.

The Trustee filed the instant adversary proceeding on January 14, 1993, and filed an amended complaint on April 13, 1993. The amended complaint alleges that Buy Right's warranty deed to Gunn was an action taken in violation of 11 U.S.C. § 362(a)(3), and hence is null and void ab initio. The Trustee further alleges that Gunn's granting of the mortgage on the Property to Wesav is a nullity, conveyed no interest to Wesav, and constitutes a cloud on the Trustee's title to the Property. The Trustee seeks turnover of the Property pursuant to 11 U.S.C. § 542 from Gunn, and the entry of an order declaring that the Debtor's quitclaim deed to Buy Right, Buy Right's warranty deed to Gunn, and the mortgage given by Gunn to Wesav are void ab initio.

Buy Right, in its amended answer to the amended complaint, sets forth several affirmative defenses. First, Buy Right alleges that it had no knowledge of the Debtor's pending bankruptcy on June 22, 1992. Second, Buy Right contends that it paid to the Debtor the fair market sum of approximately $31,000.00 for her conveyance of the Property to Buy Right via the quitclaim deed. Buy Right further maintains that it improved the Property by expending the sum of $18,000.00, and subsequently sold the Property to Gunn for approximately $49,000.00. Third, Buy Right alleges that it was a good faith purchaser. Last, Buy Right states that the Trustee did not file a copy of the bankruptcy petition with the Recorder of Deeds for Cook County until November 6, 1992, almost six months after the conveyance to Buy Right.

Rather than filing an answer to the amended complaint, Gunn and Wesav filed their motion for summary judgment on April 5, 1993. Thereafter, the Trustee filed a cross-motion for summary judgment on May 3, 1993. In addition, Gunn filed a cross-claim against Buy Right. Gunn contends that in the event that the Court finds in favor of the Trustee, Buy Right will have breached its warranties of good title to her under the warranty deed. Gunn maintains that as a result of this purported breach of warranty, she has expended funds and incurred attorney's fees to protect her title to the Property in this adversary proceeding.


Gunn and Wesav contend in their motion for summary judgment that as bona fide purchaser and mortgagee for value and without any notice of the avoidability of the deed from Hill to Buy Right, they are protected from the Trustee's avoidance and recovery powers under Sections 549 and 550 of the Bankruptcy Code. Moreover, Gunn and Wesav argue that even if the Court were to find the deed from Hill to Buy Right void, because the Trustee failed to record a copy of the bankruptcy petition before Gunn and Wesav purchased their interests in the Property, Gunn and Wesav took the Property for value and without knowledge of the bankruptcy case, and thus are protected.

The Trustee, on the other hand, argues that sections 549 and 550 do not apply because the deed from Hill to Buy Right was made in violation of the automatic stay under 11 U.S.C. § 362(a)(3), rendering it void, and precluding a transfer of the Property. Alternatively, the Trustee contends that if section 549 does apply, Gunn and Wesav had sufficient facts to put them on notice of the avoidability of the deed from Hill to Buy Right. The Trustee contends that Hill's quitclaim deed instead of a warranty deed to Buy Right should have put Gunn and Wesav on notice that there might have been something amiss with Hill's title to the Property, and further inquiry should have been made. Hence, the Trustee concludes that Gunn and Wesav are not transferees without knowledge of the possible avoidability of the transfer.

The primary gist of the Trustee's cross-motion for summary judgment is that the Debtor, as of the date of the conversion of the case to Chapter 7, had no legal capacity to convey any interest in the Property. The Trustee contends that the quitclaim deed from Hill to Buy Right conveyed only whatever interest the Debtor had in the premises at that time, which the Trustee maintains was none. The Trustee argues that the Debtor's quitclaim deed to Buy Right cannot properly be termed a post-petition transfer of property of the estate as that term is used in section 549.

A. Summary Judgment Standard

In order to prevail on a motion for summary judgment, the movant must meet the statutory criteria set forth in Rule 56 of the Federal Rules of Civil Procedure, made applicable to adversary proceedings by Federal Rule of Bankruptcy Procedure 7056. Rule 56(c) reads in part:

The 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); see also Donald v. Polk County, 836 F.2d 376, 378-379 (7th Cir. 1988).

In 1986, the United States Supreme Court decided a trilogy of cases which encourage the use of summary judgment as a means to dispose of factually unsupported claims. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). "The primary purpose for granting a summary judgment motion is to avoid unnecessary trials when there is no genuine issue of material fact in dispute." Farries v. Stanadyne/Chicago Div., 832 F.2d 374, 378 (7th Cir.1987) quoting Wainwright Bank & Trust Co. v. Railroadmens Federal Sav. & Loan Asso., 806 F.2d 146, 149 (7th Cir.1986). The burden is on the moving party to show that no genuine issue of material fact is in dispute. Anderson, 477 U.S. at 256, 106 S.Ct. at 2514; Celotex, 477 U.S. at 322, 106 S.Ct. at 2552; Matsushita, 475 U.S. at 585-586, 106 S.Ct. at 1355-1356. There is no genuine issue for trial if the record, taken as a whole, does not lead a rational trier of fact to find for the non-moving party. Matsushita, 475 U.S. at 587, 106 S.Ct. at 1356. "If the evidence is merely colorable or is not significantly probative, summary judgment may be granted." Anderson, 477 U.S. at 249-250, 106 S.Ct. at 2511 (citations omitted); see also Valley Liquors, Inc. v. Renfield Importers, Ltd., 822 F.2d 656, 659 (7th Cir.1987), cert. denied, 484 U.S. 977, 108 S.Ct. 488, 98 L.Ed.2d 486 (1987).

The party seeking summary judgment always bears the initial responsibility of informing the court of the basis for its motion, identifying those portions of the "pleadings, depositions, answers to interrogatories, and affidavits, if any," which it believes demonstrates the absence of a genuine issue of material fact. Celotex, 477 U.S. at 323, 106 S.Ct. at 2553. Once the motion is supported by a prima facie showing that the moving party is entitled to judgment as a matter of law, a party opposing the motion may not rest upon the mere allegations or denials in its pleadings, rather its response must show that there is a genuine issue for trial. Anderson, 477 U.S. at 248, 106 S.Ct. at 2510; ...

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