In re Jacobs, Bky. No. 01-24739ELF (Bankr. E.D. Pa. 1/21/2008), Bky. No. 01-24739ELF

• Decision Date: 21 January 2008
• Docket Number: Adv. No. 08-00013ELF,Bky. No. 01-24739ELF
• Parties: IN RE: NEAL M. JACOBS, Chapter 7, Debtor(s). ROBERT H. HOLBER, Chapter 7 Trustee, Plaintiff(s), v. NEAL M. JACOBS, et al Defendant(s).
• Court: U.S. Bankruptcy Court — Eastern District of Pennsylvania

Page 1

IN RE: NEAL M. JACOBS, Chapter 7, Debtor(s) ROBERT H. HOLBER, Chapter 7 Trustee, Plaintiff(s), v. NEAL M. JACOBS, et al Defendant(s).

Bky. No. 01-24739ELF

Adv. No. 08-00013ELF

United States Bankruptcy Court, E.D. Pennsylvania.

January 21, 2008.

ORDER

ERIC L. FRANK, Bankruptcy Judge.

AND NOW, in the above-captioned adversary proceeding, Plaintiff Robert Holber, Chapter 7 Trustee ("the Trustee") having filed a twelve (12) count Complaint against the Debtor and Defendants Judith Jacobs ("Mrs. Jacobs"), Matthew Jacobs, Marc Jacobs, Hillcrest Racquet Club, Inc. ("Hillcrest") and M&M Real Estate, Inc. ("M&M") (all but the Debtor referred to collectively as "the Non-Debtor Defendants") on January 15, 2008 (Docket Entry No. 1);

AND, the Debtor and the Non-Debtor Defendants having filed Answers to the Trustee's Complaint on March 24, 2008 (Docket Entry No. 11);

AND, the Non-Debtor Defendants having filed a Motion for Summary Judgment with respect to Counts V, VI, VIII, IX, X, and XII of the Complaint on August 1, 2008 ("the Summary Judgment Motion") (Docket Entry No. 29);¹

AND, the Trustee having filed a response to the Summary Judgment Motion on August 29, 2008 (Docket Entry No. 38), to which the Non-Debtor Defendants filed a reply on October 20, 2008 (Docket Entry No. 47);

AND, on September 2, 2008, the parties having filed a Joint Pre-Trial Statement (Docket Entry No. 40);

AND, on October 23, 2008, the court having heard oral argument on the Summary Judgment Motion;

AND, as a result of the oral argument, the court having issued a scheduling order on October 29, 2008 (Docket Entry No. 50) that:

A. permitted the Trustee to supplement the summary judgment record with respect to Count X of the Complaint; and

B. set a deadline of November 13, 2008 for the Trustee to file a motion for leave to file an amended complaint;

AND, the Trustee having then:

A. supplemented the summary judgment record and filed a "Supplemental Brief in Opposition to Non-Debtor Defendants' Motion for Summary Judgment" ("the Supplemental Brief") on October 30, 2008 (Docket Entry No. 52); and

B. filed a "Motion to Amend Complaint Seeking to Avoid Transfers and for Turnover of Property of the Bankruptcy Estate" ("the Motion to Amend") on November 11, 2008 (Docket Entry No. 54) AND, the Non-Debtor Defendants having:

A. filed a response to the Supplemental Brief on November 13, 2008 (Docket Entry No. 56); and

B. filed a response to the Motion to Amend on December 1, 2008, which included a request for relief titled as a "Cross Motion for Dismissal Under §546 of the Code" ("the Cross Motion") (Docket Entry No. 58);

AND, the Trustee having filed, inter alia, a response to the Cross Motion on December 19, 2008 (Docket Entry No. 62);

AND, the court having considered the Summary Judgment Motion, the Cross Motion, the Motion to Amend, the arguments advanced by the parties at the October 23, 2008 hearing, as well as all of the parties' supporting written submissions;

THE SUMMARY JUDGMENT MOTION

AND, Fed. R. Bankr. P. 7056 and Fed. R. Civ. P. 56(c) providing that summary judgment should be granted when the "pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c);²

Count V — Post-Petition Payments Pursuant to the Greshville Note

AND, the parties agreeing that the following facts pertaining to Count V of the Complaint are not in dispute:

A. On March 10, 1995, a Note was signed by Greshville Realty, Inc. promising to pay to the Debtor the principal sum of $135,000.

B. On March 10, 1995, Greshville Realty, Inc. also signed a Mortgage securing payment to the Debtor under the Note.

C. Greshville Realty, Inc. was required to make payments under the Note in the amount of $2,000 per month.

D. Mrs. Jacobs made one or more loans to Greshville Realty, Inc.

E. On or about March 30, 1995, in connection with said loans from Mrs. Jacobs, Debtor executed a Collateral Pledge of Stock Agreement and an Assignment of Mortgage.³

F. The Assignment of Mortgage was never recorded.

G. The balance under the Note as of the date of the filing of the Debtor's bankruptcy petition was $51,000.⁴

See Joint Pre-Trial Statement at 3;

AND, in Count V of the Complaint, the Trustee having asserted a claim against the Debtor and Mrs. Jacobs for "turnover" of assets and/or avoidance of a prepetition transfer pursuant to 11 U.S.C. §544;⁵

AND, the Non-Debtor Defendants having argued that summary judgment is warranted because Mrs. Jacobs' possession of the note and mortgage perfected the transfer in 1995 and defeats the Trustee's §544 avoidance claim;

AND, the Trustee having established a genuine issue of material fact based on sworn statements made by the Debtor;⁶ AND, therefore, the court concluding the Non-Debtor Defendants are not entitled to summary judgment on Count V;

Count VI — Income Tax Refund For 1994

AND, in Count VI of the Complaint, the Trustee having asserted a claim against the Debtor and Mrs. Jacobs pursuant to 11 U.S.C. §548;⁷ AND, the parties agreeing that the following facts pertaining to Count VI of the Complaint are not in dispute:

A. On or about May 18, 2001, Debtor and Mrs. Jacobs filed an Amended U.S. Individual Income Tax Return 1040X for tax year 1994.

B. The Amended 1040X for tax year 1994 shows a refund due in the amount of $114,607 resulting from a net operating loss attributable to NGN, Inc. in 1997 which was carried back and applied to tax years 1994 and 1995.

C. On or about August 8, 2001, the tax refund in the amount of $114,607.18 was deposited into a National Penn Bank ("NPB") checking account titled in the names of Judith Ann Jacobs and Matthew C. Jacobs.

See Joint Pre-Trial Statement at 3;

AND, the Non-Debtor Defendants arguing that, in the absence of evidence to the contrary, the court must assume, for purposes of this proceeding, that the money refunded by the IRS was property owned by the Debtor and Mrs. Jacobs as tenants by the entireties;

AND, the Non-Debtor Defendants arguing further that under applicable nonbankruptcy law (i.e, Pennsylvania law), the transfer of tax refund monies (asserted to be held as tenants by the entireties) is not subject to avoidance where, as in this case, there are no joint, unsecured creditors of the Debtor and his non-debtor spouse;

AND, accepting arguendo, the arguments set forth in the preceding two (2) paragraphs, the court nevertheless concluding that a prepetition transfer of entireties property is subject to avoidance under 11 U.S.C. §548 (even if, the property is not subject to avoidance as a fraudulent transfer under applicable nonbankruptcy law), see In re Smoot, 265 B.R. 128, 136-37 (Bankr. E.D. Va. 1999), aff'd 257 F.3d 401 (4^th Cir. 2001); In re Wickstrom, 113 B.R. 339 (Bankr. W.D Mich.1990). But see In re Treiber, 92 B.R. 930 (Bankr. N.D. Okl. 1988);⁸

AND, accordingly, the court concluding that the Non-Debtor Defendants are not entitled to judgment as a matter of law on Count VI of the Complaint;

Count VIII — Transfer of Real Estate to M&M Real Estate

AND, in Count VIII of the Complaint, the Trustee having asserted a claim against the Debtor and his sons, Matthew Jacobs and Marc Jacobs, pursuant to 11 U.S.C. §548;

AND, the parties agreeing that the following facts pertaining to Count VIII of the Complaint are not in dispute:

A. On or about July 18, 2001, an Agreement of Sale was executed between NKM, Ltd. and M&M for the sale of certain real estate located in Exeter Township, Berks County, Pennsylvania.

B. The shareholders of M&M are Matthew and Marc Jacobs.

C. A deed dated July 18, 2001 evidencing the transfer was recorded at the Berks County Recorder's Office on July 26, 2001.

D. NKM, Ltd. purchased the real estate for $1,400,000.00 in 1996 and sold it to M&M in 2001 for $1,124,573.09.

E. On or about July 23, 2001, NPB made a loan in the amount of $1,405,000 to Hillcrest and M&M.

See Joint Pre-Trial Statement at 4;

AND, the Non-Debtor Defendants arguing that they received adequate consideration for the transfer of the real estate;

§548(a)(1)(A)

AND, adequate consideration being irrelevant to the avoidability of a transfer under §548(a)(1)(A) and therefore, adequate consideration not being a defense to the Trustee's claim under §548(a)(1)(A);⁹

AND, there being a disputed issue of material fact as to whether the Debtor effected the transfer with an "actual intent" to hinder, delay or defraud creditors under §548(a)(1)(A);¹⁰

AND, therefore the court concluding that the Non-Debtor Defendants are not entitled to summary judgment on Count VIII under 11 U.S.C. §548(a)(1)(A); §548(a)(1)(B)

AND, adequate consideration being a defense to the avoidability of a transfer under 11 U.S.C. §548(a)(1)(B);

AND, the Non-Debtor Defendants having produced evidence that the consideration paid to the Debtor for the transfer of the subject property was adequate;

AND, the Trustee having failed to come forward with any evidence to rebut the evidence produced by the Non-Debtor Defendants on the issue of the adequacy of the consideration;

AND, therefore, the court concluding that the Trustee has failed to meet his burden of establishing the existence of a genuine issue of material fact in support of his contention that the value received by the Debtor was not "reasonably equivalent" for purposes of §548(a)(1)(B);

AND, therefore the court concluding that the Non-Debtor Defendants are entitled to summary judgment under 11 U.S.C. §548(a)(1)(B);

Count IX — Pledge of Securities to NPB

AND, in Count IX of the Complaint, the Trustee having asserted a claim against the Debtor, Hillcrest, M&M, Matthew Jacobs and Marc Jacobs, pursuant to 11 U.S.C §§544,¹¹ 550 and the Pennsylvania Uniform Fraudulent Transfer Act, 12 Pa. C.S. §5101 et. seq.;

AND, the parties agreeing that the following facts pertaining to Count...