In re Lumbar

• Decision Date: 03 March 2011
• Docket Number: Bankruptcy No. 08–36803.,Adversary No. 09–3093.
• Citation: 446 B.R. 316
• Parties: In re Mary Joan LUMBAR, f/k/a Mary Joan Welsh, f/k/a Mary Joan LaFond, Debtor.Patti J. Sullivan, Trustee, Plaintiff,v.Raymond J. Welsh, Joan C. Welsh, The Welsh Living Trust, and Raymond J. Welsh and Joan C. Welsh, Trustees, Defendants.
• Court: U.S. Bankruptcy Court — District of Minnesota

446 B.R. 316

In re Mary Joan LUMBAR, f/k/a Mary Joan Welsh, f/k/a Mary Joan LaFond, Debtor.Patti J. Sullivan, Trustee, Plaintiff,

v.Raymond J. Welsh, Joan C. Welsh, The Welsh Living Trust, and Raymond J. Welsh and Joan C. Welsh, Trustees, Defendants.

Bankruptcy No. 08–36803.

Adversary No. 09–3093.

United States Bankruptcy Court, D. Minnesota.

March 3, 2011.

Andrea M. Hauser, Leonard, O'Brien, Spencer, Gale & Sayre, Minneapolis, MN, for Plaintiff.

Alan E. Brown, Larkin Hoffman Daly & lindgren Ltd., Bloomington, MN, for Defendants.

ORDER DENYING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT AND GRANTING DEFENDANTS' RESPONSIVE REQUEST FOR SUMMARY JUDGMENT

GREGORY F. KISHEL, Chief Judge.

This adversary proceeding came before the Court on the Plaintiff's motion for summary judgment and on the Defendants' responsive request for summary judgment. The Plaintiff appeared by her attorney, Andrea M. Hauser. The Defendants appeared by their attorneys, Thomas J. Flynn and Julie N. Nagorski. The following decision is based on the written record submitted for the motion, and on counsel's written and oral argument.

THE PARTIES

The Debtor is a resident of Ramsey County, Minnesota. She filed a voluntary petition for bankruptcy relief under Chapter 7 on December 24, 2008.

The Plaintiff is the Trustee of the Debtor's bankruptcy estate.

The individual Defendants (“the Welshes”) are the Debtor's parents. Defendant The Welsh Living Trust was formed by the Welshes.

NATURE OF ADVERSARY PROCEEDING

The subject of this adversary proceeding is real estate located at 1866 Wellesley Avenue in St. Paul, Minnesota. The Plaintiff pleads the following facts in relation to that real estate. In October, 1994, the Welshes and the Debtor and her then-husband, Daniel Lumbar, entered a contract for deed for the sale of the property. The Welshes were the sellers and the Lumbars were the purchasers. Eleven years later, there was a rapid succession of legal proceedings: the Lumbars went through a proceeding for the dissolution of their marriage; the Welshes undertook to cancel the contract for deed; the Lumbars and the Welshes were embroiled in litigation in the Ramsey County District Court over the property; they entered into a settlement of that litigation; various instruments relating to the title of the property were executed, including a quit claim deed from the Debtor to the Welshes; and some, but not all, of those documents were filed in the land records for Ramsey County.

In her complaint, the Plaintiff seeks to undo the ultimate disposition of the Debtor's interest in the real estate, and to recover that interest or its value. She challenges the various component transactions under six separate counts of her complaint:

1. In Count I, she seeks a declaratory judgment that the Welshes' cancellation of the contract for deed was ineffective under Minnesota law.

2. In Count II, she seeks to avoid the transfer under the quit claim deed pursuant to 11 U.S.C. § 548(a)(1)(B), i.e., as a constructively-fraudulent transfer.

3. In Count III, she seeks to avoid the same transfer pursuant to 11 U.S.C. § 548(a)(1)(A), i.e., as a transfer made with actual intent to hinder, delay, or defraud the Debtor's creditors.

4. In Count IV, she seeks to avoid the same transfer as a constructively-fraudulent transfer under Minn.Stat. §§ 513.44 and 513.45, applied pursuant to 11 U.S.C. § 544.

5. In Count V, she seeks to avoid the same transfer as ineffective due to lack of perfection, invoking 11 U.S.C. § 544(a).

6. In Count VI, she characterizes the ultimate disposition of the property as an unjust enrichment of the Welshes, and she seeks an award of damages against them.

To support these theories, the Plaintiff recites a long, involved series of fact averments, largely transactional and documentary in nature.

In their answer, the Defendants admit many of the fact averments. (Most of the admitted facts would be based on objectively-memorialized, documentary evidence anyway.) They deny the remainder, particularly those that are inferential and that would characterize the acts of the Debtor and the Welshes as subjectively fraudulent. They plead a handful of affirmative defenses: the Plaintiff's failure to state a claim on which relief could be granted, and the time-worn “equitable defenses of laches, estoppel, and waiver.” They assert the effectiveness of their cancellation of the contract for deed as a defense. They argue that avoidance remedies under fraudulent transfer law do not apply to an effective cancellation of a contract for deed. Finally, they plead that the Debtor “received reasonably equivalent value in return,” to “the extent that the Debtor transferred anything of value” in the real estate to them.

MOTIONS AT BAR

The Plaintiff requested summary judgment via a formal motion. The target of the motion is the second of the potential transfers identified in her complaint—the one that would have been effected via the quit claim deed from the Debtor to the Welshes, which was given as part of the settlement of the state-court litigation. The Plaintiff sought judgment, as a matter of law, on Counts II–V of her complaint—i.e., the avoidance or nullification of any transfer to the Defendants that was made when the Debtor gave the deed.

To support the motion, the Plaintiff submitted a body of evidence, mostly documentary in nature. This, she argued, made out a prima facie case under those counts, for avoidance of a transfer of an interest in real estate as a constructively-fraudulent transfer under provisions of the Bankruptcy Code and Minnesota's fraudulent transfer law. She also sought avoidance as an actually-fraudulent transfer under the Bankruptcy Code, using a “badges of fraud” analysis. In the alternative, she argued, the transfer had to be deemed ineffective against her under Minnesota law, in her status as a hypothetical bona fide purchaser under 11 U.S.C. § 544(a).

As the Plaintiff would have it, the granting of any of these expedients would entitle her to recover the value of an undivided one-half interest in the equity in the real estate, measured as of the date of the deed. The recovery would be effected by a money judgment against the Defendants pursuant to 11 U.S.C. § 550(a). She maintained that the amount of that value could be readily liquidated on the record she made.

The unspoken postulate of the Plaintiff's motion was that her evidence was uncontroverted. If that were the case, a grant of summary judgment would be mandated, if the governing law entitled the Plaintiff to relief on the facts thus established. Fed.R.Civ.P. 56(a), as incorporated by Fed. R. Bankr.P. 7056 (“The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.”).

The Welshes did not make a formal motion for summary judgment in their favor. In their response to the Plaintiff's motion, they argued that she was not entitled to summary judgment. They put forth alternate bases for that position: there were genuine issues of material fact as to one or more of the elements the Plaintiff had to prove; or, legal relief was not available to the Plaintiff under a sequence of events that could be conceded to her as matters of fact. They requested that they be granted summary judgment, were the latter analysis accepted.

The Welshes' request is not presented by motion in the strictest technical sense. However, the Plaintiff and her counsel do not complain of inadequate notice or an inability to respond.¹ Thus, a grant of summary judgment for the defense can still be considered and made if the record merits that outcome. Celotex Corp. v. Catrett, 477 U.S. 317, 326, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Figg v. Russell, 433 F.3d 593, 597 (8th Cir.2006); Bendet v. Sandoz Pharm. Corp., 308 F.3d 907, 912 (8th Cir.2002); Shur–Value Stamps, Inc. v. Phillips Petroleum Co., 50 F.3d 592, 595 (8th Cir.1995); Interco Inc. v. Nat'l Surety Corp., 900 F.2d 1264, 1268–1269 (8th Cir.1990).

UNDISPUTED FACTS

The parties present a welter of issues, but they do not agree as to their logical sequence. The best way to sort this out is to identify the historical and transactional facts that are uncontroverted. They are as follows:

1. The Debtor and Daniel Lumbar were married on October 1, 1994.

2. On October 28, 1994, the Lumbars, as purchasers, entered a contract for deed with the Welshes, as sellers, for the real estate at 1866 Wellesley Avenue in St. Paul, Minnesota.

3. The total purchase price under the contract for deed was $150,000.00. After the crediting of a down payment of $7,500.00, the balance was to be paid with 7% interest. The debt was amortized via monthly payments of $750.00; an interim lump-sum payment of $22,500.00 due on April 1, 1996; and the remaining balance due in full on October 1, 2001.

4. The contract for deed was recorded in the Ramsey County land records on November 7, 1994.

5. In February, 2000 the Welshes conveyed their sellers' interest in the contract for deed to “Raymond J. Welsh and Joan C. Welsh, Trustees, or their successors in trust, under the Welsh Living Trust.” This deed was recorded on April 10, 2000.

6. The Lumbars made the monthly payments on an ongoing basis. They did not make the interim lump-sum payment due in 1996, or the final balloon payment due in 2001.

7. The Welshes did not undertake to cancel the contract for deed on either of the defaults on the lump-sum payments. In January, 2002, the Lumbars began making monthly payments of $1,000.00. The Welshes accepted these payments as they were made.

8. In February, 2006, Daniel Lumbar commenced proceedings for the dissolution of the Lumbars' marriage, in the Hennepin County, Minnesota District Court.

9. On May 1, 2006, the Welshes served a notice of cancellation of contract for deed on the Lumbars. In the notice, the Welshes asserted that the amount due was $188,426.15, payment of which would be...