In re Keener

• Decision Date: 01 October 2001
• Docket Number: Bankruptcy No. 00-20774-7. Adversary No. 01-2003.
• Citation: 268 BR 912
• Parties: In re Richard Lynn KEENER, Debtor. Donna Christie, Trustee, Plaintiff, v. First State Bank of Stratford, B.A. Donelson, and Rick Reinhart, Defendants.
• Court: U.S. Bankruptcy Court — Northern District of Texas

268 B.R. 912 (2001)

In re Richard Lynn KEENER, Debtor Donna Christie, Trustee, Plaintiff, v. First State Bank of Stratford, B.A. Donelson, and Rick Reinhart, Defendants.

Bankruptcy No. 00-20774-7. Adversary No. 01-2003.

United States Bankruptcy Court, N.D. Texas, Amarillo Division.

October 1, 2001.

COPYRIGHT MATERIAL OMITTED

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David M. Jones, Sprouse, Smith & Rowley, Amarillo, TX, for plaintiff.

Steven Lee Hoard, Mullin, Hoard & Brown, Amarillo, TX, for defendant.

MEMORANDUM OPINION

ROBERT L. JONES, Bankruptcy Judge.

The court considers the parties' crossmotions for summary judgment. The claims of both Donna Christie, the Trustee and Plaintiff, and the Defendants, the First State Bank of Stratford (FSB), B.A. Donelson (Donelson), and Rick Reinhart (Reinhart), arise from a foreclosure sale conducted April 4, 2000. The Trustee contends that FSB, Donelson, and Reinhart failed to remit to the Debtor, Richard Lynn Keener, $200,590.00 of "excess" proceeds realized from the sale. FSB and the other Defendants argue the $200,590.00 was properly credited to the Debtor's obligations at the bank.

Under Rule 56 of the Federal Rules, a party may obtain summary judgment when "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 judgment as a matter of law." FED.R.CIV.P. 56(c); Stults v. Conoco, Inc., 76 F.3d 651, 654 (5th Cir.1996). The court may render summary judgment on the entire case, on the issue of liability alone, or on certain issues and not others. FED. R.CIV.P. 56(c) and (d).

From the summary judgment evidence submitted by the parties, the court finds the following facts are material and undisputed.

On January 22, 1997, Lana and Richard Keener pledged farm land (the "Keener Farm Land") to FSB in a Deed of Trust filed of record at Volume 315, Page 264 of the Real Property Records of Sherman County, Texas (the "Deed of Trust"). The Keener Farm Land consists of approximately 799 acres of land in Sherman County, Texas. It secured a promissory note signed the same day by Lana and Richard Keener in the original principal amount of $300,000.00. On February 6, 1997, Lana and Richard Keener executed a second promissory note, which renewed the January 22, 1997 note. This second promissory note (the "Keener Farm Land Note") is the note ultimately foreclosed on by FSB. Pursuant to a Final Decree of Divorce, Lana Keener, on January 7, 1998, conveyed her interest in the Keener Farm Land to Richard Keener by Special Warranty Deed.

In addition to the Keener Farm Land Note, Richard Keener was also indebted to FSB under four other loans secured by personal property: (1) Loan No. 23646 dated November 21, 1997, in the original principal amount of $275,000.00 (the "Crop/Equipment Note"); (2) Loan No. 22347 dated May 6, 1996, in the original principal amount of $59,000.00 (the "Reinke Sprinkler Note"); (3) Loan No. 23418 dated August 5, 1997, in the original principal amount of $78,500.00 (the "Lockwood Sprinkler Note"); and (4) Loan No. 22708 dated October 28, 1996, in the original principal amount of $18,000.00 (the "John Deere Disc Note") (collectively referred to as the "Other Notes"). The Keener Farm Land secured payment of the Keener Farm Land Note, and Richard Keener's crops, equipment, and irrigation systems secured payment of the Other Notes.¹

On February 10, 1999, Richard Keener filed a Chapter 12 bankruptcy proceeding. On May 11, 1999, he filed his Chapter 12 Plan of Reorganization, which provided that FSB would retain its lien on the Keener Farm Land Note and that each of the Other Notes would remain secured by the property by which they were secured pre-petition. On October 26, 1999, Richard Keener filed his Second Amended Plan of Reorganization, which was confirmed on January 11, 2000. The Second Amended Plan provided that the Other Notes were additionally secured by the Keener Farm Land. However, FSB could not foreclose the Keener Farm Land until after first foreclosing the personal property collateral securing the Other Notes, assuming a deficiency remained. Finally, the Second Amended Plan contemplated execution of new documents to memorialize the agreement.² On February 24, 2000, Richard Keener's Chapter 12 case was dismissed.

On February 28, 2000, FSB sent Richard Keener a Notice of Default and Notice of Foreclosure on the Keener Farm Land Note asserting an amount owed of $346,610.00. The Notice of Foreclosure scheduled a foreclosure sale for April 4, 2000, of the Keener Farm Land under the Deed of Trust. It described only the Keener Farm Land as "property to be sold." Finally, the Notice of Foreclosure provided, in paragraph 5 entitled "Obligations Secured," that the Deed of Trust secured "any and all present and future indebtedness of Richard L. Keener." The Deed of Trust, however, contained no such provision.

On April 3, 2000, Rick Reinhart was appointed as Substitute Trustee under the Deed of Trust and on April 4, 2000, the foreclosure sale was held. Reinhart, as Substitute Trustee, conducted the sale and subsequently prepared and signed the Foreclosure Sale Deed which listed the Keener Farm Land as the property sold. Richard Keener did not attend the foreclosure sale. During the Foreclosure Sale, Reinhart announced that the sale would be subject to unpaid ad valorem taxes of approximately $7,800.00 and that the property to be sold included the Keener Farm Land and the Lockwood sprinkler system located and installed on the Keener Farm Land. The Foreclosure Sale Deed lists a sales price of $547,200.00. The successful bid was entered by Reinhart on behalf of FSB, followed by his conveyance of the Keener Farm Land to FSB through execution and recording of the Foreclosure Sale Deed.

FSB's $547,200.00 bid was credited as follows: (1) to Richard Keener's unpaid debt on the Keener Farm Land Note (Loan No. 22941); (2) to the unpaid amount remaining on the Lockwood Sprinkler Note (Loan No. 23418); (3) to the unpaid amount remaining on the Reinke Sprinkler Note (Loan No. 22347); and (4) to the unpaid amount on the Crop/Equipment Note (Loan No. 23646). The total amount credited to Richard Keener's debts, $555,000.00, was more than the $547,200.00 sales price obtained at the foreclosure sale. There is no dispute that Keener had defaulted on his obligations to FSB.

On June 28, 2000, FSB began foreclosure proceedings on Richard Keener's homestead.³ On July 28, 2000, Richard Keener filed for protection under Chapter 7 of the Bankruptcy Code. On October 11, 2000, the Chapter 7 Trustee, Donna Christie, filed this adversary proceeding against FSB, B.A. Donelson, and Rick Reinhart, the Substitute Trustee, seeking to recover the excess proceeds from FSB. The Trustee claims that the amount owed on the Keener Farm Land Note, as referenced in the Foreclosure Sale Deed, was $346,610.00, and the amount of the sale was $547,200.00, leaving a remainder of $200,590.00 that should be turned over to the Trustee.

On March 12, 2001, Keener signed an affidavit concerning the foreclosure sale and his relationship with FSB. He states in the Affidavit as follows: "I never revoked my agreement, as embodied in the Chapter 12 Plan to have the Other Notes secured by the Keener Farm Land."

Discussion

The issue before the court is whether FSB's crediting (and Reinhart's payment) of the excess $200,590.00 to the Other Notes, rather than remitting such excess to Keener, constitutes a fraudulent conveyance under section 548 of the Bankruptcy Code, a breach of contract, or a wrongful foreclosure.

At the heart of the Trustee's claims is her contention that the Other Notes were not secured by the Keener Farm Land under the Deed of Trust. If they were, the Trustee has no viable cause of action. On the other hand, if the Keener Farm Land did not secure the Other Notes, FSB is left with its claims that Keener consented or agreed to application of the excess proceeds or, alternatively, if Keener did not consent, Keener has no viable claim because he suffered no damages.

FSB's position is premised on the prior confirmed Chapter 12 plan, which effectively bootstrapped the bank's secured position by providing that the Keener Farm Land secured not only the Keener Farm Land Note, but the Other Notes as well. The Trustee argues that the terms of the confirmed plan, and any agreements thereto, become a nullity once the case was dismissed. FSB contends that section 349(b) of the Bankruptcy Code refutes the Trustee's argument. This provision provides as follows:

(b) Unless the court, for cause, orders otherwise, a dismissal of a case other than under section 742 of this title —

(1) reinstates — (A) any proceeding or custodianship superseded under section 543 of this title;

(B) any transfer avoided under section 522, 544, 545, 547, 548, 549, or 724(a) of this title, or preserved under section 510(c)(2), 522(i)(2) or 551 of this title; and

(C) any lien voided under section 506(d) of this title;

(2) vacates any order, judgment, or transfer ordered, under section 522(i)(1), 542, 550, or 553 of this title; and

(3) revests the property of the estate in the entity in which such property was vested immediately before the commencement of the case under this title.

11 U.S.C.A. § 349(b). FSB argues that confirmed plans are left unaffected by a dismissal because section 349(b) does not specifically include confirmation orders within the types of orders that are vacated. Congress's intent, FSB contends, is expressed by its omission of confirmation orders.

The terms of a confirmed plan in Chapter 12 are binding on the debtor and on each of the debtor's creditors and, if the debtor is a corporation or partnership, on each of the debtor's equity security holders and partners. See 11 U.S.C. § 1227(a). The order of confirmation acts as res judicata on all matters addressed...