In re Porter

• Decision Date: 11 January 1984
• Docket Number: Adv. No. 82-0062-R.,Bankruptcy No. 81-02167-R
• Citation: 37 BR 56
• Court: U.S. Bankruptcy Court — Eastern District of Virginia
• Parties: In re Roscoe Marvin PORTER, Jr., Debtor. Robert E. HYMAN, Trustee, Plaintiff, v. Roscoe M. PORTER, Jr., and Barbara E. Porter, Defendants.

37 B.R. 56 (1984)

In re Roscoe Marvin PORTER, Jr., Debtor Robert E. HYMAN, Trustee, Plaintiff, v. Roscoe M. PORTER, Jr., and Barbara E. Porter, Defendants.

Bankruptcy No. 81-02167-R, Adv. No. 82-0062-R.

United States Bankruptcy Court, E.D. Virginia, Richmond Division.

January 11, 1984.

COPYRIGHT MATERIAL OMITTED

James R. Sheeran, Richmond, Va., for plaintiff.

Robert A. Canfield, Jr., Richmond, Va., for defendant Barbara E. Porter.

John Allen Fox, Richmond, Va., for defendant Roscoe M. Porter, Jr.

MEMORANDUM OPINION

BLACKWELL N. SHELLEY, Bankruptcy Judge.

This case came on before this Court upon the removal by Herbert Weisberger, a creditor of the debtor, to this Court of a chancery suit between himself and the defendants pending in the Circuit Court of Henrico County, Virginia. Subsequently, Robert E. Hyman, the trustee in bankruptcy for Roscoe M. Porter, Jr., was substituted as the plaintiff in this action and amended the complaint herein in order to state causes of action pursuant to 11 U.S.C. §§ 544 and 548. After notice and hearing, and upon the submission of briefs and stipulation of facts, this Court renders the following opinion.

STATEMENT OF THE FACTS

The plaintiff's complaint seeks to avoid a transfer of real property located on Cornwall Road in Henrico County, Virginia (the Cornwall Road property) and a transfer of a diamond ring. Both properties were owned previously by the mother of Roscoe M. Porter, Jr. The properties were bequeathed and devised to the debtor upon the debtor's mother's death in 1978. In September, 1978, the debtor gave his wife the diamond ring. On August 3, 1981, the debtor transferred the Cornwall Road property to himself and to his wife as tenants by the entirety.

Roscoe M. Porter, Jr., Herbert Weisberger, and others formed a limited partnership in 1972 in order to raise venture capital to pursue the development of a parcel of commercial real estate. At that time, because Weisberger was the only member of the partnership with unlimited liability for the venture's obligations, Porter and the others agreed to indemnify Weisberger for 75 percent of any liability to which he might be exposed in the venture.

By 1977 the venture had failed and Weisberger incurred such liability. In November, 1978, Weisberger filed suit in the Circuit Court of Richmond, Division I, against Porter and one other individual to recover on the indemnity agreement. On January 23, 1981, the state court found Porter liable to Weisberger on the indemnity contract. A tentative settlement caused the parties to continue generally a hearing on the damages scheduled for July 23, 1981. Shortly thereafter, on August 3, 1981, Roscoe M. Porter, Jr. transferred the Cornwall Road property to his wife, Barbara E. Porter, and to himself as tenants by the entirety. This property was valued by Roscoe Porter in his bankruptcy petition at $88,000.00 and not contradicted by any evidence presented in this proceeding.

Subsequent to July 23, 1981, the parties abandoned the proposed settlement. On December 7, 1981 judgment was entered in favor of Weisberger and against Porter in the amount of $99,617.92. On December 9, 1981, Weisberger instituted a creditor's suit in the Circuit Court of Henrico County pursuant to Va.Code §§ 55-80 and 55-81 against the Porters seeking to set aside the conveyances of property by Roscoe Porter to his wife. The December 7, 1981, judgment was set aside on December 22, 1981, to permit Porter to file a brief.

On December 28, 1981, Roscoe Porter filed a Chapter 11 bankruptcy proceeding with this Court. Porter's Chapter 11 proceeding was converted to a case under Chapter 7 on February 24, 1982. On February 26, 1982, Herbert Weisberger and St. Paul Title Insurance Company filed an involuntary petition in bankruptcy against Roscoe Porter's wife, Barbara E. Porter.¹ Weisberger sought and obtained relief of the automatic stay of Bankruptcy Code § 362(a) from this Court for the purpose of concluding the damages segment of his state court action that had been set aside on December 22, 1981. On March 10, 1982, the Richmond Circuit Court again rendered judgment in favor of Weisberger and against Porter in the amount of $99,617.92, thereby establishing the amount of Porter's liability under the indemnity agreement. The creditor's suit pending in the Circuit Court of Henrico County was then removed to this Court on March 25, 1982.

The Porters testified that in consideration for the transfer of title to the Cornwall Road property they each executed wills in which they left their entire estate to each other. Also in consideration for the conveyance of the real estate, Barbara Porter gave her husband a one-half interest in an automobile and household items, all of which were valued at $2,245.00. Barbara Porter testified that Roscoe Porter would have transferred the house into both of their names even if she had not transferred anything of value to him in exchange. The Porters also claim that the real property transfer was made for the purpose of obtaining tax advantages, and that the timing of the transfer with the signing of the wills was the result of a belief that the Weisberger suit was settled and a sense of urgency to act promptly because they had been in an auto accident in April of 1981.

Roscoe Porter further testified that at the time of the conveyance of his interest in the real estate he believed that the Weisberger claim had been settled for $35,000.00. Porter stated that on August 3, 1981, the date of the transfer of the Cornwall Road property, he had $47,000.00 in a trust account which he could have used to fulfill his obligation under the settlement agreement. He also testified that his financial condition was substantially the same at the time of the real property transfer as it was at the time of filing bankruptcy.

CONCLUSIONS OF LAW

The plaintiff herein is now the trustee in bankruptcy who seeks to set aside transfers of both real and personal property by the debtor for the benefit of the creditors of the bankruptcy estate. As a basis of such recovery, the plaintiff alleges that certain transfers are avoidable pursuant to 11 U.S.C. § 548(a)(1) and § 548(a)(2). The plaintiff also alleges that pursuant to § 544(b) these transfers are avoidable under Va.Code § 55-80 and § 55-81. The plaintiff asserts four separate grounds by which to avoid the transfers: (1) that the transfers were made with actual intent to hinder, delay, or defraud a creditor; (2) that the debtors received less than reasonably equivalent value in exchange for transfers made while insolvent; (3) that the transfers were fraudulent under state law; and (4) that the transfers were voluntary conveyances avoidable under state law.

Avoidance under § 548 of the Bankruptcy Code

Section 548 of the Bankruptcy Code, which (along with § 544) governs the trustee's powers to avoid fraudulent conveyances, provides in pertinent part:

(a) The trustee may avoid any transfer of an interest of the debtor in property, or any obligation incurred by the debtor, that was made or incurred on or within one year before the date of the filing of the petition, if the debtor—

(1) made such transfer or incurred such obligation with actual intent to hinder, delay, or defraud any entity to which the debtor was or became on or after the date that such transfer occurred or such obligation was incurred, indebted; or

(2)(A) received less than a reasonably equivalent value in exchange for such transfer or obligation; and

(B)(i) was insolvent on the date that such transfer was made or such obligation was incurred, or became insolvent as a result of such transfer or obligation;. . . .

Pursuant to 11 U.S.C. § 548(a)(1), the trustee may avoid a transfer of property that the debtor transferred with actual intent to hinder, delay, or defraud his creditors. This Court has held previously that when a debtor transfers real property from himself to his wife and himself as tenants by the entirety, it is a fraudulent conveyance avoidable under § 548(a)(1). In re White, 28 B.R. 240 (Bkrtcy.E.D.Va.1983).²

A similar result was obtained in In re Loeber, 12 B.R. 669 (Bkrtcy.D.N.J.1981). There, like in In re White, the bankruptcy court held that the debtor's transfer of real property titled in himself to his wife and himself as tenants by the entirety constituted actual fraud pursuant to 11 U.S.C. § 548(a)(1). This Court's decision herein and this Court's decision in In re White is bolstered further by case law holding that where a transfer is between related parties, the transfer is subject to close scrutiny and gives rise to a presumption of actual fraudulent intent where the transfer is without adequate consideration. See, e.g., In re Loeber, 12 B.R. at 675. This presumption establishes the trustee's prima facie case and shifts the burden of proof to establish the absence of fraudulent intent to the debtor. Id. Here, neither the debtor nor his wife has offered sufficient testimony to defeat the presumption of actual, fraudulent intent created because the transfer was between related parties and as discussed later, was without adequate consideration.³ Therefore, this Court holds that the transfer from the debtor to his wife and himself as tenants by the entirety is avoidable pursuant to 11 U.S.C. § 548(a)(1).

The second basis upon which the trustee seeks to avoid the transfer of the Cornwall Road property is that the debtor was insolvent at the time of the transfer and received less than reasonably equivalent value in exchange. 11 U.S.C. § 548(a)(2); In re Appomattox Agri-Service, Inc., 6 B.C.D. 1239 (Bkrtcy.W.D.Va. 1980). The debtor's wife transferred to the debtor a one-half interest in an automobile and some household items in exchange for his transfer of the Cornwall Road property to her and himself as tenants by the entirety. This Court notes, without further discussion, that the conveyance of a one-half interest in an automobile and household items, all...