In re Hixon
| Decision Date | 01 August 2003 |
| Docket Number | No. 03-6016 WM.,03-6016 WM. |
| Citation | 295 B.R. 866 |
| Parties | In re Mary Jo HIXON, Debtor. Fred Charles Moon, Chapter 7 Trustee, Plaintiff-Appellee, v. Mark Anderson, Defendant-Appellant, Mary Jo Hixon, Defendant. |
| Court | U.S. Bankruptcy Appellate Panel, Eighth Circuit |
J. Kevin Checkett, Carthage, Missouri, for appellant.
Mr. Fred C. Moon of Springfield, Missouri, for appellee.
Before KRESSEL, Chief Judge, SCHERMER and DREHER, Bankruptcy Judges.
Mark Anderson ("Anderson") appeals the bankruptcy court1 order and judgment setting aside the purchase by the Debtor Mary Jo Hixon ("Debtor") of certain annuities for Anderson as a fraudulent conveyance pursuant to 11 U.S.C. § 548. We have jurisdiction over this appeal. See 28 U.S.C. § 158(b). For the reasons set forth below, we affirm.
The first issue on appeal is whether the bankruptcy court correctly determined that the Debtor's purchase of certain annuities constituted a fraudulent transfer to Anderson pursuant to 11 U.S.C. § 548. We conclude that the bankruptcy court did not err when it determined that the purchase of the annuities was an avoidable fraudulent transfer. A second issue on appeal is whether the merits of Anderson's request for the imposition of a constructive trust should have been addressed by the bankruptcy court and should be included in this appeal because Anderson did not properly raise the issue as an affirmative defense. We conclude that the bankruptcy court properly exercised its discretion to address the merits of the constructive trust arguments in its denial of Anderson's motion to alter or amend or for a new trial.
Mark Anderson is the Debtor's nephew. In 1993, Anderson was convicted of drug offenses and sentenced to prison. At the time of Anderson's incarceration, he owed past-due child support which his ex-wife was attempting to collect. A sheriff's sale was pending with respect to certain real estate owned by Anderson. Anderson hired Attorney Larry K. Bratvold to assist with the child support collection issues and to arrange a vehicle pursuant to which the Debtor could handle Anderson's business affairs while Anderson was incarcerated. Attorney Bratvold drafted the Mark Anderson Revocable Trust ("Anderson Trust") into which certain of Anderson's assets were transferred, including certain real property located at 415, 417, and 419 Booneville, Springfield, Missouri ("Booneville Property") which was transferred by Anderson into the Anderson Trust by deed dated September 12, 1993. Anderson and the Debtor were co-trustees under the Anderson Trust and each had authority to act independently of the other. The Anderson Trust was intended to serve two purposes: to remove Anderson's assets from the reach of his creditors and to enable the Debtor to exercise complete control over Anderson's business affairs. Anderson also executed a power of attorney in favor of the Debtor granting her full authority over his financial affairs.
In 1997, the Debtor established the Mary Jo Hixon Revocable Trust ("Hixon Trust"). The Hixon Trust was drafted by Attorney Bratvoldt. The intent was to give the Debtor complete freedom to transact business with regard to Anderson's property without the fear of imposition of levy or lien on the property by Anderson's creditors or the possibility of criminal forfeiture. The Debtor was the trustee of the Hixon Trust. In the Family Identification portion of the trust the Debtor identified her children, Anna Sharp and Howard Sharp, and indicated that the trust was made for the benefit of Anderson and his descendants only and that she intended to create an additional trust for the benefit of her two children.
Notwithstanding the recognition of Anderson in the Family Identification portion of the Hixon Trust, all substantive provisions of the trust treat the Debtor as the lifetime beneficiary. The trustee is authorized to "hold and administer [trust property] for [the Debtor's] benefit." (Hixon Trust, Article 3, Section 1.)2 During the Debtor's life, the trust property and income are to be used as the Debtor directs and the income is to be distributed to the Debtor at least yearly. (Hixon Trust, Article 4, Section 1(a).) The Debtor has the absolute right to add or remove trust property. (Hixon Trust, Article 4, Section 1(b).) The Debtor has the absolute right to amend or revoke the trust. (Hixon Trust, Article 4, Section 1(c).) If the Debtor becomes incapacitated, the trustee is directed to provide for the Debtor and her obligations during such period of incapacity. (Hixon Trust, Article 4, Section 2.) The trustee is directed to deliver to the Debtor any and all annuity contracts which are owned by or deposited in the trust. (Hixon Trust, Article 5, Section 1(b).) The Trustee is authorized to pay the Debtor's expenses, debts, and taxes upon the Debtor's death. (Hixon Trust, Article 6, Section 1.) Only after the Debtor's death does Anderson become more than a residual beneficiary, at which time the balance of the trust not previously distributed is to be held and administered for Anderson's benefit. (Hixon Trust, Article 8, Section 1.)
The Debtor transferred the Booneville Property from the Anderson Trust into the Hixon Trust by deed dated April 21, 1997. Anderson was aware of the creation of the Hixon Trust as a vehicle to prevent his ex-wife from attaching property. Anderson consented to the transfer of the Booneville Property into the Hixon Trust. Anderson later executed a deed transferring other property from his name into the Hixon Trust.
On November 28, 1997, the Debtor represented on a credit application submitted to Polk County Bank that she was the owner of the Booneville Property which was titled in the Hixon Trust.
On December 14, 1998, the Hixon Trust sold the Booneville Property to Danny and Teresa Hicks for $65,000. Mr. and Mrs. Hicks paid $5,000 and executed a promissory note in the amount of $60,000 payable to the Hixon Trust. Mr. and Mrs. Hicks executed a deed of trust on the Booneville Property in favor of the Hixon Trust to secure repayment of the note. The Debtor listed the promissory note as her personal asset on her financial statement dated December 31, 1998.
On August 21, 2002, Mr. and Mrs. Hicks refinanced the debt on the Booneville Property and paid off the promissory note to the Hixon Trust in an amount in excess of $40,000. The Debtor used the proceeds of the promissory note to purchase four annuities in the amount of $10,000 each with Anderson listed as the owner of each annuity and the Debtor listed as the annuitant on each annuity. The Debtor was insolvent on the date she purchased the annuities.
On November 29, 2001, the Debtor filed a petition for relief under Chapter 7 of the Bankruptcy Code. Fred Charles Moon ("Trustee") was appointed trustee of the Debtor's bankruptcy estate. The Trustee initiated an adversary proceeding to avoid the Debtor's purchase of the annuities in Anderson's name as a fraudulent conveyance pursuant to Section 548 of the Bankruptcy Code. After trial, the bankruptcy court determined that the purchase of the annuities in Anderson's name constituted an avoidable fraudulent transfer and entered judgment in favor of the Trustee and against Anderson in the amount of $40,000. Anderson filed a motion to alter or amend or for a new trial which the bankruptcy court denied. Anderson filed this appeal.
We review the bankruptcy court's findings of fact for clear error and its conclusions of law de novo. Fed. R. Bankr.P. 8013; Meeks v. Red River Entm't of Shreveport, P'ship (In re Armstrong), 285 F.3d 1092, 1096 (8th Cir.2002). We review the bankruptcy court's denial of the motion to alter or amend or for a new trial for an abuse of discretion. Kelly v. Armstrong, 206 F.3d 794, 798 (8th Cir.2000).
The bankruptcy court found that the Debtor had complete control over all assets in the Hixon Trust. She could use the trust assets for herself. Accordingly, the assets of the Hixon Trust including the promissory note executed in connection with the sale of the Booneville Property and its proceeds were property of the Debtor in August of 2002 when the Debtor used such proceeds to purchase the four annuities. The evidence supports this finding. Anderson did not give any consideration to the Debtor in August of 2002 when she purchased the annuities. The transfer was therefore for less than a reasonably equivalent value. The Debtor was insolvent at the time. Therefore the purchase of the annuities in Anderson's name was a fraudulent transfer of the Debtor's property pursuant to Bankruptcy Code Section 548(a)(1)(B) which the Trustee was entitled to avoid.
Anderson contends that the Booneville Property was his property at the time it was sold and that the sale proceeds which were used to purchase the annuities were likewise his. Anderson asserts that the Debtor was a fiduciary for Anderson and that any interest she had in the property was limited to a legal interest which was subject to her fiduciary duties in favor of the equitable owner Anderson. To the extent the Debtor had a beneficial interest in the assets of the Hixon Trust, Anderson argues that the Debtor's transfer of the Booneville Property from the Anderson Trust to the Hixon Trust constituted a breach of her fiduciary duty to Anderson and that his equitable remedies against the Debtor for such breach survive the bankruptcy pursuant to Section 541(c)(2) of the Bankruptcy Code.
Under Anderson's theory, no transfer of property of the Debtor occurred because she never owned the property but rather merely held it in trust for his...
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In re Hixon
...of annuities by Hixon in the name of Anderson made prior to the filing of Hixon's bankruptcy petition. Moon v. Anderson (In re Hixon), 295 B.R. 866, 868 (B.A.P. 8th Cir.2003). We Mark R. Anderson is the legal nephew of Mary Jo Hixon, the debtor in this case. In 1993, shortly after his convi......