In re Mathews

• Decision Date: 31 March 1997
• Docket Number: Bankruptcy No. 3-94-3419,Adv. No. 3-95-049.
• Parties: In re Linda Jean MATHEWS, Debtor. John A. HEDBACK, Trustee, Plaintiff, v. AMERICAN FAMILY MUTUAL INSURANCE COMPANY, Defendant.
• Court: U.S. Bankruptcy Court — District of Minnesota

207 B.R. 631 (1997)

In re Linda Jean MATHEWS, Debtor.

John A. HEDBACK, Trustee, Plaintiff, v. AMERICAN FAMILY MUTUAL INSURANCE COMPANY, Defendant.

Bankruptcy No. 3-94-3419, Adv. No. 3-95-049.

United States Bankruptcy Court, D. Minnesota, Third Division.

March 31, 1997.

COPYRIGHT MATERIAL OMITTED

Brian F. Kidwell and Edward W. Gale, St. Paul, MN, for Plaintiff/Trustee.

Steven J. Kluz, Minneapolis, MN, for Defendant.

ORDER GRANTING PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT

GREGORY F. KISHEL, Bankruptcy Judge.

This adversary proceeding came on before the Court for hearing on the Plaintiff's motion for summary judgment on Counts 2 and 4 of his complaint. The Plaintiff appeared by his attorneys, Brian F. Kidwell and Edward W. Gale. The Defendant appeared by its attorney, Steven J. Kluz. Upon the moving and responsive documents, the arguments of counsel, and the relevant files, records, and proceedings herein, the Court makes the following order.

NAMED PARTIES, OTHER PARTIES AND THEIR RELATIONSHIP

The Debtor is a resident of Maplewood, Minnesota. On June 20, 1991, she was the driver of an automobile that was involved in a serious accident with two other automobiles in St. Paul Park, Minnesota. Seeking relief from her financial liability for that accident, the Debtor filed a voluntary petition under Chapter 7 of the Bankruptcy Code on July 27, 1994.

Brenda N. Carlson and Thomas J. Thompson were, respectively, the driver and a passenger in one of the other vehicles involved in the accident. They suffered severe neurological and other injuries that left them permanently and totally disabled.¹ They hold judgments against the Debtor as a result of the accident, both entered in June, 1994 — Thompson's in an amount exceeding $7,000,000.00, and Carlson's in an amount exceeding $3,600,000.00.

The Defendant is a corporation duly licensed and authorized to do to business as an insurance company in the State of Minnesota. On the date of the accident, the vehicle driven by the Debtor was insured under an automobile liability policy issued by the Defendant. After the accident, the Defendant undertook to defend and indemnify the Debtor, pursuant to that policy. In December, 1992, Carlson and Thompson received funds from the Defendant, the total of which equaled the limits of coverage under the policy. Then, by a written instrument dated June 30, 1993, the Debtor released the Defendant from all liability to her on account of the way it had handled the claims against her arising from the accident. The Debtor received $50,000.00 in consideration for the execution of this release.

The Plaintiff is the Trustee of the Debtor's bankruptcy estate. As such, he has certain statutory powers to avoid pre-petition transfers of the Debtor's assets; he succeeded to all nonexempt rights of action against third parties that the Debtor held as of the date she filed for bankruptcy; and he has a fiduciary obligation to pursue all such legal claims, as part of his obligation to collect nonexempt assets and to distribute them to the Debtor's creditors.

NATURE AND HISTORY OF PROCEEDING

On March 29, 1995, the Plaintiff filed the complaint in this adversary proceeding. In it, he asserts two legal statuses: that of holder of creditors' avoidance powers, and that of successor to the Debtor as to prepetition causes of action against the Defendant. The Plaintiff sets out four separate "causes of action"² in his complaint:

1. The Plaintiff states that the Defendant had an implied duty to exercise good faith and fair dealing with the Debtor in the handling and defense of the injured parties\' claims. He asserts that it breached that duty, leading to the entry of large unsatisfied judgments against the Debtor. In consequence, he maintains, the Defendant is liable in damages to the bankruptcy estate.

2. On the premise that the June 30, 1993 release was a transfer to the Defendant of the Debtor\'s rights of action for "bad faith" against it, the Plaintiff asserts that the Defendant induced and received that transfer with actual intent to hinder, delay, or defraud Carlson and Thompson. Thus, the Plaintiff asserts, the release is subject to avoidance at his instance as a fraudulent transfer pursuant to 11 U.S.C. § 544(b) and MINN.STAT. § 513.44(a)(1).

3. In the alternative, asserting that the Debtor had not received reasonably-equivalent value for the release of her "bad faith" claims against the Defendant, at a time when the Defendant knew or reasonably should have known that the Debtor would incur debts beyond her ability to pay, the Plaintiff asserts that the release is avoidable as a fraudulent transfer under MINN.STAT. § 513.44(a)(2).

4. In the alternative to his fraudulent-transfer counts, the Plaintiff requests a declaratory judgment that enforcing the release would violate public policy, and that it is void as a result.

The Plaintiff acknowledges that he must prevail on one of the last three counts before he may proceed on the first.

By way of answer, the Defendant denies a number of the factual averments underlying the Plaintiff's causes of action. It then affirmatively defends on the grounds that the release, as a binding and enforceable contract, bars relief to the Plaintiff on his first cause of action, and that his second through fourth causes of action are unsupported in fact and/or law.³ In its answer, the Defendant admits

that this is a core proceeding under 28 U.S.C. § 157(b)(2)(H), however, the Defendant denies that this court has jurisdiction over all causes of action alleged in the complaint . . .

The Defendant clarified this assertion in an early motion for dismissal, in which it maintained that the Plaintiff's first cause of action would not be ripe until the Court had passed on the remaining counts. By an order entered on May 8, 1995, the Court denied that motion. All of the counts, then, went forward through discovery.

On motion of the Defendant, the Court determined that the Defendant has the right to a jury trial on the first, second and third counts, to the extent that they present triable fact issues. In re Mathews, 203 B.R. 152 (Bankr.D.Minn.1996).

MOTION AT BAR

The Plaintiff now moves for summary judgment on Counts 2 and 4 of his complaint. As to the second count, he maintains that all of the evidence going to the Defendant's state of mind when she executed the release indicates that she did so with actual intent to hinder, delay, or defraud Carlson and Thompson. Thus, as the Plaintiff would have it, the transfer or extinction of rights of action that occurred via the release must be avoided, reinstating them to the bankruptcy estate. As to the fourth count, the Plaintiff notes that all of the transactional and legal circumstances surrounding the execution of the release are uncontroverted. Thus, he continues, the conformity of the release to public policy is purely an issue of law, and one that must end in the release being struck down. This, too, would reinstate the "bad faith" count to actionability by the Plaintiff.

The Defendant agrees that the fourth count is amenable to summary adjudication — though, of course, it argues for the opposite result on the merits. On the second count, however, the Defendant maintains that the record presents triable issues of material fact, which must be presented to a jury.

DISCUSSION

I. Standards for Summary Judgment

Motions for summary judgment, of course, are governed by FED.R.CIV.P. 56(c).⁴ A motion under this rule can be presented to the Court in two different postures.

First, the parties can stipulate to a set of facts, and present their dispute on the legal consequences of those facts. If the stipulated facts go to all of the elements of the claim or defense at issue, the dispute is appropriate for summary adjudication. E.g., W.S.A., Inc. v. Liberty Mut. Ins. Co., 7 F.3d 788, 790 (8th Cir.1993); Coca-Cola Bottling Co. v. Teamsters Local Union No 688, 959 F.2d 1438, 1440 (8th Cir.1992); In re Schirmer, 191 B.R. 155, 157 (Bankr.D.Minn.1996); In re Atkins, 176 B.R. 998, 1002 (Bankr. D.Minn.1994); In re Sunde, 149 B.R. 552, 554 (Bankr.D.Minn.1992); In re Ramy Seed Co., 57 B.R. 425, 430 (Bankr.D.Minn.1985).

If the parties cannot agree to the identity and content of the material facts, another stage pushes into the inquiry. The elements of the claim or defense at issue must first be established — because the materiality of given facts turns on whether they go to those elements, as fixed under law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986); In re Mid-City Hotel Assoc., 114 B.R. 634, 645 (Bankr.D.Minn.1990). Then, the evidence presented on the motion — generated by the parties' investigation and their discovery proceedings — must be reviewed closely, and linked to the appropriate element(s). To be cognizable under Rule 56, such evidence "must be significant" and "probative," Johnson v. Enron Corp., 906 F.2d 1234, 1237 (8th Cir.1990), as well as "substantial," Krause v. Perryman, 827 F.2d 346, 350 (8th Cir.1987).

When a plaintiff is the moving party under Rule 56, it may amass all of the fruits of its investigation and discovery, and present them to the court. Then it may "point out," Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 2553-2554, 91 L.Ed.2d 265 (1986), that that evidence supports only the factual theory of its own case, and supports neither the defendant's factual theory on the plaintiff's claim nor any pleaded affirmative defense. In re Mathern, 137 B.R. 311, 314 (Bankr.D.Minn.1992), aff'd, 141 B.R. 667 (D.Minn.1992).

If the plaintiff does this, the burden of production shifts to the respondent-defendant. That party can avoid a grant of adverse summary judgment only by producing evidence that would support findings in its favor on one or more of the elements of the plaintiff's case, or that would meet all of the elements of its affirmative defense. This evidence, too, must be...