In re Phillips, Adversary No. 06 A 01180.

Decision Date17 December 2007
Docket NumberAdversary No. 06 A 01180.
Citation379 B.R. 765
PartiesIn re Mervyn C. PHILLIPS, Jr., Debtor. David R. Brown, Trustee, Plaintiff, v. Mercedes Phillips, Madonna Brown, and First National Bank of LaGrange, Defendants.
CourtU.S. Bankruptcy Court — Northern District of Illinois

Arthur W. Rummler, Esq. & Michael J. Davis, Esq., for Plaintiff.

Brendan Shiller, Esq., Law Office of Brendan Shiller, LLC, Chicago, IL, for Defendants Mercedes Phillips & Madonna Brown.

MEMORANDUM OPINION

JOHN H. SQUIRES, Bankruptcy Judge.

Debtors must be just and first pay their creditors before they can be generous to and prefer family members as this adversary proceeding demonstrates. This matter comes before the Court on the amended complaint filed by David R. Brown, the Chapter 7 trustee (the "Trustee") of the bankruptcy estate of Mervyn C. Phillips, Jr. (the "Debtor") against Mercedes Phillips ("Mercedes"), Madonna Brown ("Madonna"), and First National Bank of LaGrange (the "Bank") which seeks to avoid alleged fraudulent conveyances pursuant to 11 U.S.C. §§ 544(b), 550, and 551 and 740 ILL. COMP. STAT. 160/5 and 160/8 of the Illinois Uniform Fraudulent Transfer Act, and sell certain real property pursuant to 11 U.S.C. § 363(h). In addition, the Trustee seeks a default judgment against Madonna pursuant to Federal Rule of Bankruptcy Procedure 7055(b). For the reasons set forth herein, the Court grants judgment in favor of the Trustee pursuant to Counts I through V of the amended complaint. Under Count I of the amended complaint, the Court holds that the transfer of the Debtor's one-half interest in real property located in Burr Ridge, Illinois to a land trust, of which Mercedes was the sole beneficiary, was a fraudulent transfer under 740 ILL. COMP, STAT. 160/5(a)(1) and (2). As such, the transfer is avoidable under 11 U.S.C. § 544(b)(1) and 740 ILL. COMP. STAT. 160/8(a)(1). Pursuant to 11 U.S.C. § 550(a)(1) and 740 ILL. COMP. STAT. 160/9(b), the Court holds that the Trustee may recover the Debtor's one-half interest in the real property located in Burr Ridge, Illinois from the Bank as trustee of the land trust dated February 14, 2005, and known as trust number 4508, and as the initial transferee. The Court directs the Bank as trustee of the land trust to deed the property back to the Debtor and Mercedes as joint tenants pursuant to 740 ILL. COMP. STAT. 160/8(a)(1), (2), & (3)(C).

With respect to Count II of the amended complaint, the Court holds that the Trustee has demonstrated that the transfer of $823,000 by the Debtor for the payment of the mortgage on the Burr Ridge, Illinois property was a fraudulent conveyance under 740 ILL. COMP. STAT. 160/5(a)(1) and (2). As such, the transfer is avoidable under 11 U.S.C. § 544(b)(1) and 740 ILL. COMP. STAT. 160/8(a)(1). Pursuant to 11 U.S.C. § 550(a) and 740 ILL. COMP. STAT. 160/9(b), the transfer can be recovered for the benefit of the Debtor's estate. The Court awards judgment in the sum of $823,000 to the Trustee and against Mercedes, the entity for whose benefit the transfer was made. In addition, the Court awards the Trustee prejudgment interest from the date of the filing of the adversary proceeding, June 27, 2006, pursuant to the rate set forth in 28 U.S.C. § 1961. Moreover, the Court assesses the Trustee's taxable costs against Mercedes pursuant to 28 U.S.C. § 1920. The Trustee shall submit a bill therefor pursuant to Local Bankruptcy Rule 7054-1 within thirty days hereof. The Court declines to award the Trustee his attorneys' fees and tax same against Mercedes.

Under Count HI of the amended complaint, the Court grants default judgment in favor of the Trustee and against Madonna. The Court holds that the Trustee has demonstrated that the transfer of $290,000 by the Debtor for the purchase of a condominium located in Hinsdale, Illinois, and the transfer of $31,000 for repairs and improvements to that property were fraudulent under 740 ILL. COMP. STAT. 160/5(a)(1) and (2). As such, the transfers are avoidable under 11 U.S.C. § 544(b)(1) and 740 ILL. COMP. STAT. 160/8(a)(1). Pursuant to 11 U.S.C. § 550(a)(1) and 740 ILL. COMP. STAT. 160/9(b), the transfer can be recovered for the benefit of the Debtor's estate. The Court awards judgment in the sum of $321,000 to the Trustee and against Mercedes and Madonna, the entities for whose benefit the transfers were made. Further, the Court awards the Trustee prejudgment interest from the date of the filing of the adversary proceeding, June 27, 2006, pursuant to the rate set forth in 28 U.S.C. § 1961. Moreover, the Court assesses the Trustee's taxable costs against Madonna and Mercedes pursuant to 28 U.S.C. § 1920. The Trustee shall submit a bill therefor pursuant to Local Bankruptcy Rule 7054-1 within thirty days hereof. The Court declines to award the Trustee his attorneys' fees and tax same against Mercedes and Madonna.

Pursuant to Count IV of the amended complaint, the Court holds that the Trustee has demonstrated that the transfer by the Debtor of $63,000 to satisfy a mortgage on property owned by Madonna was fraudulent under 740 ILL. COMP. STAT. 160/5(a)(1) and (2). As such, the transfer is avoidable under 11 U.S.C. § 544(b)(1) and 740 ILL. COMP. STAT. 160/8(a)(1). Pursuant to 11 U.S.C. § 550(a)(1) and 740 ILL. COMP. STAT. 160/9(b), the transfer can be recovered for the benefit of the Debtor's estate. The Court awards a default judgment in the sum of $63,000 to the Trustee and against Madonna, the entity for whose benefit the transfer was made. In addition, the Court awards the Trustee prejudgment interest from the date the adversary proceeding was commenced, June 27, 2006, pursuant to the rate set forth in 28 U.S.C. § 1961. Moreover, the Court assesses the Trustee's taxable costs against Madonna pursuant to 28 U.S.C. § 1920. The Trustee shall submit a bill therefor pursuant to Local Bankruptcy Rule 7054-1 within thirty days hereof. Finally, the Court denies the Trustee's request for an award of attorneys' fees.

Under Count V of the amended complaint, the Court holds that the Trustee has demonstrated all of the necessary elements pursuant 11 U.S.C. § 363(h). Accordingly, the Court authorizes the Trustee to sell the Burr Ridge, Illinois property free and clear of any interest that. Mercedes may have in the property, subject to her homestead rights under applicable Illinois law, and her right to an undivided one-half share of the net sale proceeds.

I. JURISDICTION AND PROCEDURE

The Court has jurisdiction to entertain this matter pursuant to 28 U.S.C. § 1334 and Internal Operating Procedure 15(a) of the United States District Court for the Northern District of Illinois. This is a core proceeding under 28 U.S.C. § 157(b)(2)(A), (H), and (O).

II. FACTS AND BACKGROUND

Mercedes is the non-debtor spouse of the Debtor and resides with him at 604 Burr Ridge Club Drive, Burr Ridge, Illinois (the "Burr Ridge Property"). (Am. Compl. ¶ 4.) Madonna is the daughter of the Debtor and Mercedes. (Am.Compl. ¶ 5.) First National Bank of LaGrange is the trustee under a land trust agreement dated February 14, 2005, and known as trust number 4508. (Am.Compl. ¶ 6.)

On November 29, 1988, Mercedes took title to the Burr Ridge Property pursuant to a warranty deed from Arthur and Dolores Kralovec. (Am.Compl. ¶ 7.) On May 10, 1993, Mercedes conveyed the Burr Ridge Property into a land trust, known as trust number 13856, at Standard Bank and Trust Company. (Am.Compl. ¶ 8.) On September 18, 2001, title to the Burr Ridge Property was deeded out of the land trust at Standard Bank and Trust Company and to the Debtor and Mercedes as joint tenants. (Am.Compl.Ex. A.) Thereafter, on September 30, 2002, the Debtor and Mercedes executed a mortgage in favor of ABN AMRO Mortgage Group, Inc. ("ABN AMRO") on the Burr Ridge Property to secure an indebtedness of $700,000. On May 13, 2004, the Debtor and Mercedes refinanced the ABN AMRO mortgage with a new mortgage from ABN AMRO, this time securing an indebtedness of $830,200. (Trustee Ex. J.) On February 14, 2005, the Debtor and Mercedes executed a deed in trust transferring legal ownership of the Burr Ridge Property to First National Bank of LaGrange as trustee under the provisions of a trust agreement dated February 14, 2005, and known as trust number 4508 (the "Land Trust"). (Trustee Exs. H & I.) The sole beneficiary of the Land Trust is Mercedes. (Trustee Ex. I.) Through this transfer of the Burr Ridge Property into the Land Trust, the Debtor divested himself of any ownership interest in the Burr Ridge Property. The Debtor and Mercedes continue to live there. The Debtor testified that the value of the Burr Ridge Property is approximately $1.1-1.3 million.

In 1989, the Debtor purchased an interest in Hillmore Golf Club, Inc. ("Hillmore"), which is located in Wisconsin. The Debtor owned 38% of the shares of stock in Hillmore and its affiliate, HCC Venture, Inc. ("HCC Venture"). On December 20, 1989, the Debtor created the Mervyn C. Phillips, Jr. Revocable Declaration of Trust (the "Revocable Trust"). (Trustee Ex. B.) The Debtor was the trustee of the Revocable Trust. (Id.) Thereafter, in September of 1991, the Debtor transferred all of his interest in Hillmore and HCC Venture to the Revocable Trust. (Trustee Ex. A.) On May 15, 1993, the Debtor created the Mervyn C. Phillips, Jr. 1993 Irrevocable Trust (the "Irrevocable Trust"). (Trustee Ex. C.) The Debtor listed certain assets to be part of the Irrevocable Trust res on a document entitled "Schedule of Property." (Id.) That list of assets included the Burr Ridge Property and Hillmore. (Id.) Nevertheless, neither the title to the Burr Ridge Property nor the Hillmore stock was ever transferred into the Irrevocable Trust. The shares of stock in Hillmore and HCC Venture...

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