In re Jordan

• Decision Date: 01 July 2008
• Docket Number: Bankruptcy No. 07-01264-TLM.,Adversary No. 07-06056-TLM.
• Citation: 392 B.R. 428
• Court: U.S. Bankruptcy Court — District of Idaho
• Parties: In re Lee Thomas JORDAN and Sharon Anne Jordan, dba Jordan Meadows, Debtors. Lee Thomas Jordan and Sharon Anne Jordan, dba Jordan Meadows, Plaintiffs, v. Jeff Kroneberger, Defendant.

392 B.R. 428

In re Lee Thomas JORDAN and Sharon Anne Jordan, dba Jordan Meadows, Debtors Lee Thomas Jordan and Sharon Anne Jordan, dba Jordan Meadows, Plaintiffs, v. Jeff Kroneberger, Defendant.

Bankruptcy No. 07-01264-TLM.

Adversary No. 07-06056-TLM.

United States Bankruptcy Court, D. Idaho.

July 1, 2008.

COPYRIGHT MATERIAL OMITTED

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Joseph M. Meier, Theodore Steven Tollefson, Cosho Humphrey, LLP, Boise, ID, for Plaintiffs.

Terry C. Copple, Boise, ID, for Defendant.

MEMORANDUM OF DECISION

TERRY L. MYERS, Chief Judge.

I. INTRODUCTION

Lee and Sharon Jordan ("Debtors" or "Plaintiffs") filed a voluntary chapter 11 bankruptcy petition on August 13, 2007, and they serve as debtors in possession in their chapter 11 case. See § 1101(1).¹ Exercising the powers granted debtors in possession, see § 1107(a), they brought the instant adversary proceeding against creditor Jeff Kroneberger ("Defendant"). In this proceeding, Plaintiffs contend Defendant was the recipient of a fraudulent transfer avoidable under § 548(a)(1)(B), which provides:

(a)(1) The trustee may avoid any transfer (including any transfer to or for the benefit of an insider under an employment contract) of an interest of the debtor in property, or any obligation incurred by the debtor, that was made or incurred on or within 2 years before the date of the filing of the petition, if the debtor voluntarily or involuntarily—

...

(B)(i) received less than a reasonably equivalent value in exchange for such transfer or obligation; and

(ii)(I) was insolvent on the date that such transfer was made or such obligation was incurred, or became insolvent as a result of such transfer or obligation;

(II) was engaged in business or a transaction, or was about to engage in business or a transaction, for which any property remaining with the debtor was an unreasonably small capital;

(III) intended to incur, or believed that the debtor would incur, debts that would be beyond the debtor's ability to pay as such debts matured; or

(IV) made such transfer to or for the benefit of an insider, or incurred such obligation to or for the benefit of an insider, under an employment contract and not in the ordinary course of business.

Section 548(a)(1)(B).²

The subject transfer was the November, 2006, execution of a deed of trust on certain real property located in Canyon County, Idaho, to the benefit of Defendant, securing a contemporaneous $4,342,346.32 promissory note from Debtors to Defendant, all of which occurred in conjunction with a comprehensive mediated settlement of certain litigation.

In addition to the § 548 issues, Defendant previously filed, as a secured creditor in the chapter 11 case, a motion for relief from the § 362(a) stay in order to continue with a nonjudicial foreclosure of the subject deed of trust. That motion, as finally structured, alleges relief is proper under § 362(d)(1), (2) and (3). By agreement of the parties, a § 362(e) final hearing on the stay relief motion was postponed and scheduled for evidentiary hearing simultaneous with trial in the adversary proceeding.³

The final stay relief hearing, and trial on the avoidance action under § 548, occurred on May 6 and 7, 2008. The matters were taken under advisement on May 15 following the submission of post-trial briefs. This Decision constitutes the Court's findings of fact and conclusions of law. See Fed. R. Bankr.P. 7052 (applicable to the adversary proceeding and, by incorporation under Fed. R. Bankr.P. 9014, applicable to the stay relief motion as a contested matter under § 362).

The Court concludes Plaintiffs failed to carry their burden of proof on the § 548(a)(1)(B) contentions that an avoidable constructively fraudulent transfer occurred. Judgment will therefore be entered for Defendant in the adversary proceeding. The Court further concludes that stay relief is appropriate under § 362(d).

II. FACTS AND BACKGROUND

Lee Jordan is 69 years old and has been married to Sharon for over 40 years.⁴ They have four living children, including a son, Douglas Jordan. Douglas is married to Alayna Jordan. Lee is retired, and his and Sharon's income comes from Social Security and a small retirement benefit from one of Lee's prior employers.

For most of his life, Lee lived on farm ground in Canyon County, Idaho, near the city of Caldwell. Originally, this property was owned by his parents. In the 1980's, Lee inherited a 25.79 acre parcel ("Parcel 1") and a 35.68 acre parcel ("Parcel 3"). See Ex. 100 (record of survey).⁵ Lee's half-sister, Jean Settler and her brother each inherited about 20 acres. Jean ultimately acquired her brother's interest, creating a 39.78 acre parcel ("Parcel 2"), which became known and at trial was referred to as the "Sweet Jean Parcel."⁶ There is also an approximately 15 acre parcel, to the northeast and immediately adjacent to the Sweet Jean Parcel, upon which Lee and Sharon's present house sits.

The three parcels are adjacent and form an inverted and reversed "L" shape, bordered on the east by Midland Road and on the south by Ustick Road. They lie next to an elementary school to the southwest, and residential subdivisions to the west. The properties are roughly equidistant between Interstate 84 to the south and State Highway 20 to the north, both major commuting corridors in the Boise or Treasure Valley region.

During the early 2000's, this area was undergoing a rapid transition from agricultural uses to residential subdivisions, and significant profits were being realized by those converting farm ground to such development.⁷ In the spring of 2005, Lee asked Douglas for assistance in obtaining financing with which to acquire the Sweet Jean Parcel and to develop it together with the two parcels, 1 and 3, already owned by Lee and Sharon into an approximately 100 acre residential subdivision to be called Jordan Meadows.

Lee claims no personal knowledge or experience in real estate development. Douglas had some prior, though limited, experience in subdivision development. This experience started with his work in landscaping maintenance and contracting, which was his occupation for some 15 years. In 2002, Douglas worked on small (e.g., half dozen lot) developments, working on obtaining "entitlements" (county development approvals) and supervising contractors, and he also took university classes in construction management. In 2004-2005, Douglas worked on larger subdivision developments in Nevada, primarily dealing with landscaping and common area aspects and supervising "horizontal construction", meaning work from the ground level down, including streets, utilities, water and sewer, and the like.

Douglas and Alayna created a "packet" of information concerning the possible development of Jordan Meadows and simultaneously looked for financing and for more experienced development assistance, even though Douglas contemplated "managing" the actual physical development. Through Alayna's brother, Douglas learned of and approached Defendant. Defendant is a real estate broker and developer with 15 years experience and holds Utah real estate and broker licenses. He and Douglas first met to discuss the project and a possible relationship in the summer of 2005 in Mesquite, Nevada and, several weeks later, Defendant came to Idaho to view the property and continue the discussions.

Defendant believed the properties had development potential given the overall market in the area, and he specifically noted that the prospective Jordan Meadows subdivision was located adjacent to a school and near other subdivisions. He and Debtors, commencing in September, 2005, entered into certain agreements regarding the purchase and development of the properties.

A. The purchase contracts

On September 27, 2005, Defendant as buyer and Debtors as sellers executed a real estate purchase contract for Parcel 3. Ex. 101; Ex. 202. Pursuant to an attached Addendum No. 1 to this contract, the parties agreed to the following terms:

1. Settlement was to occur between January 31, 2006 and December 31, 2006, with the exact date to be determined by Defendant, and Debtors to be provided 30 days notice thereof.

2. The purchase price would be $55,000.00 per acre following a survey by Debtors. (For the 39.37 acres shown on this contract, the price would be $2,165,350.00.) Defendant agreed that Debtors could deduct, with his approval, four "children lots"⁸ and frontage on Ustick Road.

3. Defendant paid $2,500.00 earnest money, and agreed to increase the earnest money to $400,000.00 upon closing. He also agreed to cooperate with Debtors on a 1031 tax exchange.

4. Defendant agreed to close within 30 days of receipt of annexation of and final subdivision plat approval for the property by the city of Caldwell.⁹

5. Debtors were responsible for improvements and utilities along the two public roadways, and the 4 children lots, to the extent required by Caldwell.

6. Debtors granted Defendant the "legal rights" to seek to annex the property into Caldwell and to work toward final platting, and agreed to "participate" with Defendant in that process.

7. Debtors disclosed that they were in the process of or intended to purchase the Sweet Jean Parcel, and they agreed to give Defendant a "first option" to purchase it for $60,000.00 per acre. Closing on that property would be upon final plat approval, to be in conjunction with platting the other parcels, and not before Debtors had held the Sweet Jean Parcel for at least one year, unless otherwise agreed.

An Addendum No. 2 to this contract was executed in January, 2006. Ex. 102; Ex. 203. It added a term under which Defendant would make arrangements to loan Debtors up to $500,000.00 between January and June, 2006. Debtors agreed that the property could be used to acquire a line of credit in order to provide this financing. Further, in regard to the 39.78 acre Sweet Jean Parcel, instead of providing Defendant an option to purchase, Debtors agreed...