In re Kopp

• Decision Date: 28 February 2008
• Docket Number: Bankruptcy No. 04-23171.,Adversary No. 06-6139.
• Parties: In re Don Allen KOPP, Jr., Debtor. Christopher J. Redmond, Chapter 7 Trustee, Plaintiff, v. Don Allen Kopp, Jr., et al., Defendants.
• Court: United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — District of Kansas

383 B.R. 179

In re Don Allen KOPP, Jr., Debtor Christopher J. Redmond, Chapter 7 Trustee, Plaintiff, v. Don Allen Kopp, Jr., et al., Defendants.

Bankruptcy No. 04-23171.

Adversary No. 06-6139.

United States Bankruptcy Court, D. Kansas.

February 28, 2008.

COPYRIGHT MATERIAL OMITTED

Christopher J. Redmond, One Hallbrook Place, Leawood, KS, pro se.

Scottie S. Kleypas, Husch & Eppenberger, LLC, Kansas City, MO, for Plaintiff.

Todd A. Luckman, Stumbo Hanson, LLP, Topeka, KS, for Defendants.

MEMORANDUM AND ORDER GRANTING SUMMARY JUDGMENT IN FAVOR OF PLAINTIFF

ROBERT D. BERGER, Bankruptcy Judge.

The parties have filed cross-motions for summary judgment.¹ The Trustee sued defendants Don Kopp ("Debtor"), Connie Dille, and the Connie J. Dille Trust to avoid fraudulent transfers and to recover real property or its value for the benefit of the Estate under 11 U.S.C. §§ 542, 543, 544, and 550. This matter constitutes a core proceeding over which this Court has jurisdiction.² There being no genuine issue of material fact, the Court grants the Trustee's motion and denies the Defendants' motion.

Findings of Fact

On December 30, 1998, Debtor plead guilty to physically attacking his ex-wife, Dana Dollins, and was sentenced to prison. On December 29, 1998, the day before he entered his guilty plea, `Debtor transferred his Shawnee residence, a Lenexa commercial property, and a Gardner commercial property to his mother, Connie Dille, for three dollars. The Lenexa and Gardner properties were business locations for Don Kopp Interiors, Inc., which was owned and operated by Debtor. Debtor also gave all his stock in Don Kopp Interiors to his mother for no consideration. In a June 16, 2000, deposition, Debtor testified he gave his mother his business and property because he was going to prison; he might die in prison; he could not pay his mortgage while he was in prison; and "because [his house] belonged to [Dille] anyway."³ Debtor testified he thought the properties belonged to his mother because he thought Dille's name may have been on the deeds with his.

In an October 15, 2003, deposition, Dille testified about the 1998 transfers. Dille testified Debtor owned the real properties, but her name may have been on the deeds. However, it was Dille's understanding that prior to 1998 she would only own the properties in the event something happened to her son.⁴ After repeatedly failing to recall why her son gave her all his property in 1998, Dille finally testified Debtor told her he might die in prison; he wanted the Shawnee property to be his daughter's home; he wanted the Gardner property to pay for her education; and he told his mother to sell the Lenexa property "or do what you can with it."⁵ Debtor himself never testified he made the transfers as a legacy for his daughter. Debtor never documented any intent to leave the properties to his daughter. Rather, Debtor outright gave substantially all his assets to his mother on the eve of learning his sentence for attacking Dollins. Debtor went to prison from February, 1999, to approximately September, 2001.

In June, 1999, Dollins filed suit against Debtor in federal court for damages she sustained during the attack. This suit was dismissed, and although the dismissal was eventually overturned on appeal, Dollins filed a state court suit on July 3, 2001. Meanwhile, in 2000, while Dollins' first suit was pending, Dille transferred the three real properties to the Dille Trust. At first, Dille could not recall why she transferred the properties to her trust.⁶ Dille eventually testified she created the Dille Trust and transferred the real properties to the Dille Trust because she was trying to manage her affairs the way her husband had when he was alive.⁷ Dille did not mention her granddaughter as a reason for the Dille Trust.

In 2003, Dollins amended her state court petition for damages against Debtor to include a count against Dille, the Dille Trust, Don Kopp Interiors, and Dille Properties, Inc. In addition to counts for assault, battery, false imprisonment, and intentional infliction of emotional distress, the amended petition included a count to avoid the allegedly fraudulent property transfers against Dille and the other defendants. The lawsuit was pending when Debtor filed for bankruptcy relief.

After his release from prison, Debtor regained ownership of Don Kopp Interiors from his mother, but the real properties have remained in his mother's trust. In addition to reclaiming his business, Debtor manages Dille Properties. Dille Properties manages the real properties held by the Dille Trust comprised of the Shawnee residence, the Lenexa property, the Gardner property, and Dille's residence. Debtor handles Dille Properties' bank accounts and pays the bills for the Dille Trust properties. Debtor maintains no separate personal bank account. The only bank accounts listed by the Debtor are business accounts for Dille Properties and Don Kopp Inc. Don Kopp Inc. was formed in December, 2003. It operates out of the Lenexa property. Don Kopp Interiors is no longer conducting business, but when it did, it operated out of the Lenexa and Gardner properties. Debtor once again resides in the Shawnee property he owned prior to his incarceration. Debtor does not pay rent to stay in his Shawnee home; rather, he collects business rent from his own company at the Lenexa property and pays the mortgage on the Shawnee home with the collected rent proceeds. All the money passes through Dille Properties' bank accounts. Either Debtor, Dille, or both Debtor and Dille are the only individuals with interest in or control over Don Kopp Interiors, Don Kopp Inc., the Dille Trust, and Dille Properties. In February, 2007, while this litigation was pending, the Gardner property was encumbered with a second mortgage in the amount of $18,102.80. The parties do not explain who encumbered the property or for what purpose $18,102.80 was loaned against real property subject to a pending lawsuit.

Debtor filed his Chapter 7 petition on July 28, 2004. Christopher J. Redmond is the duly appointed Trustee. Debtor did not list Dollins' state court petition to avoid fraudulent transfers as an Estate asset. Instead, Debtor listed the state court action as simply a "Petition for Damages" in response to the Statement of Financial Affairs question about lawsuits to which the debtor was a party within one year prior to the bankruptcy filing. Debtor scheduled. Dollins as an unsecured creditor with an unknown claim amount on his Schedule F. The claim was not listed as contingent, unliquidated, or disputed. Dollins did not file a complaint to determine the dischargeability of her claim.

On November 23, 2004, the Trustee filed a Report of No Distribution and Intended Abandonment. Debtor received his discharge on December 15, 2004, and the case was closed. After an exchange of correspondence between Debtor's counsel and Dollins' counsel, Dollins voluntarily dismissed the state court action without prejudice in September, 2005. The Trustee was not included in the correspondence leading to dismissal of the state court action.

On November 29, 2005, the Trustee moved to reopen the case, having discovered Dollins' claim to avoid fraudulent transfers. The Court granted the Trustee's motion on February 24, 2006, over the Debtor's objections. The Court set June 12, 2006, as the proof of claim bar date. Dollins timely filed a proof of claim, Debtor objected to Dollins' claim, alleging the Trustee abandoned the § 544(b) cause of action when the case closed, which returned the cause of action to avoid transfers back to Dollins. Debtor alleged that because Dollins then dismissed the state court action, and because the statute of limitations for avoiding fraudulent transfers had since"expired, she retroactively lost her claim as of the petition date under 11 U.S.C. § 502(b)(1). Debtor argued the claim was no longer allowable because it was no longer enforceable as being timebarred.

On August 31, 2007, the Court denied Debtor's objection and allowed Dollins' claim as an unsecured claim as of the petition date in an unliquidated amount.⁸ The Court found neither the Trustee's right to pursue the § 544(b) fraudulent conveyance claim nor the property itself, if recovered, had been abandoned upon closing the case because the Trustee did not know the claim or property existed. The Court rejected Debtor's argument he had adequately disclosed the true nature of the lawsuit. The Court found Debtor obscurely described Dollins' suit to avoid fraudulent transfers as merely a petition for damages in his Statement of Financial Affairs, and the barest reference to a damages lawsuit in the Statement of Financial Affairs was insufficient for the technical abandonment of the fraudulent transfer claim under 11 U.S.C. § 554(c). Accordingly, the Court held Dollins' subsequent dismissal of the state court action was void oh initio because the Trustee's § 544 cause of action remained protected by the automatic stay even after the case closed.

In these summary judgment pleadings, Debtor now argues he had no duty to disclose a § 544(b) claim because some courts have held such claims are not estate assets. Debtor contends § 546(a)(2) barred the Trustee's claim when the main case closed in December, 2004. The Trustee counters with his own summary judgment motion, arguing his suit is timely and is proven on the facts presented. The Trustee filed the instant suit on July 25, 2006, within § 546(a)(1)'s two-year limitation period.

The first issue is whether closing a case under the mistaken belief the estate has been fully administered forever bars a subsequent avoidance action upon its later discovery. The second issue is whether the Trustee has satisfied his burden of proof regarding the fraudulent nature of the transfers.

Conclusions of Law

A. Summary Judgment Standard.

Summary judgment is appropriate if the moving party demonstrates there is no genuine issue as...