In re Nation-Wide Exchange Services, Inc.

• Decision Date: 31 March 2003
• Docket Number: Adversary No. 00-3233.,Adversary No. 00-3258.,Bankruptcy No. 00-31923.
• Citation: 291 B.R. 131
• Parties: In re NATION-WIDE EXCHANGE SERVICES, INC., Debtor. Nauni Jo Manty, as Chapter 7 Trustee for the Bankruptcy Estate of Nation-Wide Exchange Services, Inc., Plaintiff, v. Miller & Holmes, Inc., Defendant. Miller & Holmes, Inc., Plaintiff, v. Nauni Jo Manty, as Chapter 7 Trustee for the Bankruptcy Estate of Nation-Wide Exchange Services, Inc., Defendant.
• Court: U.S. Bankruptcy Court — District of Minnesota

291 B.R. 131

In re NATION-WIDE EXCHANGE SERVICES, INC., Debtor.

Nauni Jo Manty, as Chapter 7 Trustee for the Bankruptcy Estate of Nation-Wide Exchange Services, Inc., Plaintiff, v. Miller & Holmes, Inc., Defendant.

Miller & Holmes, Inc., Plaintiff, v. Nauni Jo Manty, as Chapter 7 Trustee for the Bankruptcy Estate of Nation-Wide Exchange Services, Inc., Defendant.

Bankruptcy No. 00-31923.

Adversary No. 00-3233.

Adversary No. 00-3258.

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

March 31, 2003.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Nauni Jo Manty, Minneapolis, MN, for debtor.

Cass S. Weil, Moss & Barnett PA, Minneapolis, MN, for plaintiff.

ORDER RE: CROSS-MOTIONS FOR SUMMARY JUDGMENT

GREGORY F. KISHEL, Chief Judge.

These adversary proceedings are before the Court on cross-motions for summary judgment. The Plaintiff appears as Trustee and as counsel for the bankruptcy estate of Debtor Nation-Wide Exchange Services, Inc. Miller & Holmes, Inc. ("M & H") appears by its attorney, Cass S. Weil. Upon the moving and responsive documents and the arguments of counsel, the Court makes this order.

THE PARTIES

The Debtor in the underlying bankruptcy case is one of several business entities based in St. Paul, Minnesota, that were owned by one John Davies. The Debtor was a "Qualified Intermediary" for "like-kind exchange" transactions under 26 U.S.C. § 1031.¹ As such, the Debtor was retained by the owners of business and investment property, to receive the proceeds from the sale of such assets and to hold them until they were reinvested in similar property or were returned to the client. Along with Davies and several of his other business entities, the Debtor filed a voluntary petition under Chapter 7 on April 25, 2000.

The Trustee was appointed and began her administration of the Debtor's bankruptcy estate on April 26, 2000.

M & H is a business corporation that had been a client of the Debtor on a like-kind exchange transaction in 1999-2000.

SUBJECT OF THIS LITIGATION²

Prior to the summer of 1999, M & H conducted business at 501 Lafayette Road, St. Paul, Minnesota. Under threat of condemnation by Ramsey County, M & H agreed to sell that premises to the County for $700,000.00. It then located a parcel of undeveloped land in Hudson, Wisconsin, for a new place of business, and it contracted with a builder to erect a facility on the site.

M & H elected to use a like-kind exchange to defer the recognition of taxable gain that otherwise would have been imposed on its sale to Ramsey County. It retained the Debtor to administer a "deferred exchange." As the arrangement was ultimately performed, M & H was to assign the right to receive the full proceeds of sale to the Debtor. The Debtor received the net proceeds after an escrow company disbursed enough of them to purchase the Hudson real estate. The Debtor then was to hold the net proceeds, paying them to M & H's builder in increments as construction proceeded. The total price for the construction was expected to exceed the amount of the sale proceeds; M & H was to pay the builder for the balance. As intermediary and assignee from M & H, the Debtor was to receive title to the Hudson property, and to retain it until the construction was complete "and the property was ready to transfer to" M & H. The original terms of the Debtor's retention by M & H were set forth in two agreements executed on November 1 and 2, 1999.³

During the 90 days preceding the Debtor's bankruptcy filing, the Debtor directed the disbursement of the following sums to M & H's builder:

                DATE AMOUNT
                  1/31/00       $ 82,170.00
                  3/02/00       $ 61,343.00
                  4/10/00       $162,914.00
                

After the last such payment, M & H paid further sums to the builder in final settlement of the construction charges. The Debtor's bankruptcy filing came before the last such payment from M & H. M & H has not yet received title to the Hudson property.

NATURE OF ADVERSARY PROCEEDINGS

The two adversary proceedings at bar have been jointly administered, given their common subject matter.

In ADV 00-3233, the Trustee seeks to avoid the payments of funds that were made to M & H's builder at the direction of the Debtor between January 31 and April 10, 2000, in a total of $306,427.00, as preferential transfers under 11 U.S.C. § 547(b). To effectuate the avoidance, the Trustee seeks a money judgment against M & H pursuant to 11 U.S.C. § 550(a)(1).

In defense of ADV 00-3233, M & H pleaded first that the funds in question remained its own property, directly traceable to it, and that the Debtor "did not have any equitable interest in either the money it was holding or the real property to which it held title." Thus, as M & H would have it, there was no "transfer of an interest of the [D]ebtor in property" within the meaning of § 547(b), and the Trustee's case fails on this threshold element. It also raises two affirmative defenses under 11 U.S.C. § 547(c): that the transfers were made in the ordinary course of business of all involved parties, within the contemplation of § 547(c)(2), and that the payments were a contemporaneous exchange for new value, within the scope of § 547(c)(1).

In ADV 00-3258, M & H seeks declaratory and equitable relief against the Trustee, as to the Hudson real estate. It requests a determination that the bankruptcy estate holds no more than the bare legal title to the property, with no value inuring in the estate. It also seeks a judgment compelling the Trustee to convey that title to it, essentially via specific performance.

In response, the Trustee maintains that the pendency of her avoidance action is a bar to any affirmative relief to M & H under the November, 1999 agreements. She requests that she not be directed to convey title until the avoidance action is finally adjudicated, and until M & H has satisfied any judgment in favor of the bankruptcy estate.

MOTIONS AT BAR

Both parties have moved for summary judgment on all of the requests for relief presented in the two adversary proceedings. The governing rule is FED. R. BANKR. P. 7056.⁴ As a threshold matter, the movant under this rule must establish that there is "no genuine issue as to any...fact that is material to the claims or defenses at issue on the motion." In re de Jesus, 268 B.R. 185, 190 (Bankr.D.Minn.2001); In re Circuit Alliance, Inc., 228 B.R. 225, 229-230 (Bankr.D.Minn.1998).⁵

If there is no triable fact issue, the movant then must show its right to judgment under the governing law, upon the uncontested facts gleaned from the record presented on the motion. Guinness Import Co. v. Mark VII Distributors, Inc., 153 F.3d 607, 610-611 (8th Cir.1998); Osborn v. E.F. Hutton & Co., Inc., 853 F.2d 616, 618 (8th Cir.1988). The Eighth Circuit has noted many times that summary judgment is a particularly appropriate means of judicial decision-making where the issues in litigation are "primarily legal rather than factual." E.g., Gordon v. City of Kansas City, 241 F.3d 997, 1002 (8th Cir.2001); Buettner v. Arch Coal Sales Co., Inc., 216 F.3d 707, 713 (8th Cir.2000); United States Fidelity and Guaranty Co. v. Housing Auth. of the City of Poplar Bluff, 114 F.3d 693, 695 (8th Cir.1997); Crain v. Board of Police Com'rs, 920 F.2d 1402, 1405-1406 (8th Cir.1990). See also State of Minnesota, Dept. of Revenue v. United States, 184 F.3d 725, 728 (8th Cir.1999) (where dispute is presented on stipulated or uncontested facts and presents only questions of law, disposition by summary judgment is appropriate).

A movant for summary judgment can proceed from either an affirmative or defensive posture. If seeking relief in the affirmative on either a cause of action or an affirmative defense, the movant must amass the evidentiary fruits of its investigation and discovery effort; must link them to the recognized elements of its claim or defense; and must then demonstrate that the evidence would constitute a prima facie showing on all of the elements. In re Hauge, 232 B.R. 141, 144 (Bankr.D.Minn.1999) (summarizing governing precedent). If it does so, it will shift the onus to the respondent. There are several ways to avoid a grant of summary judgment in such circumstances. In one, the respondent may shoulder a responsive burden of proof. That is, it can produce admissible evidence that could support contrary findings of fact on one or more of the elements of the claim or defense. Mohr v. Dustrol, Inc., 306 F.3d 636, 643 (8th Cir.2002); Kells v. Sinclair Buick-GMC Truck, Inc., 210 F.3d 827, 830 (8th Cir.2000). In the alternative, it may concede the facts to the movant, and then convince the court that the governing law actually compels judgment in its favor. In re Hauge, 232 B.R. at 145.

Summary judgment may be sought preemptively, to defeat a claim or an affirmative defense. As the rule is most commonly invoked, a movant comes forward to challenge the sufficiency of its opponent's case. It does so by garnering the full fruits of both sides' known investigation and discovery, and then pointing to an apparent and fatal hole — the lack of evidence to support findings on one or more of the essential elements of the respondent's claim or defense, as those elements are identified in the law. Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). This requires a proof-centered inquiry, driven by the nature and quality of the evidence presented on the motion. If the respondent does not shoulder its burden to produce admissible evidence to meet all of the elements of its claim or defense, the movant will succeed in its preemptive strike; it will receive a judgment to defeat its opponent's case, without having to go to trial. Luigino's, Inc. v. Peterson, 317 F.3d 909, 914 (8th Cir.2003); TRI, Inc. v. Boise Cascade Office Prods., Inc., 315 F.3d 915, 918-919 (8th Cir.2003); Constr. Management and Inspection, Inc. v. Caprock Communications Corp., 301 F.3d 939, 942 (8th Cir.2002); Shrum v....