In re Shavers

• Decision Date: 19 October 2009
• Docket Number: Bankruptcy No. 03-55729-NPO.,Adversary No. 04-05038-NPO.
• Citation: 418 B.R. 589
• Parties: In re John E. SHAVERS, Debtor. Ann B. Shavers, James Koerber, Herbert J. Stelly, Sr., and JPMorgan Chase Bank, N.A., Cross-Claimants and Cross-Defendants.
• Court: U.S. Bankruptcy Court — Southern District of Mississippi

418 B.R. 589

In re John E. SHAVERS, Debtor Ann B. Shavers, James Koerber, Herbert J. Stelly, Sr., and JPMorgan Chase Bank, N.A., Cross-Claimants and Cross-Defendants.

Bankruptcy No. 03-55729-NPO.

Adversary No. 04-05038-NPO.

United States Bankruptcy Court, S.D. Mississippi.

October 19, 2009.

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Michael Allen Crawford, Taylor, Porter, Brooks & Phillips L.L.P., Baton Rouge, LA, Warren L. Conway, Gulfport, MS, for Plaintiff.

Danny E. Ruhl, William H. Leech, Sr., Copeland, Cook, Taylor & Bush, P.A., W. Jeffrey Collier, Ridgeland, MS, Michael Vincent Ratliff, Johnson Hall & Ratliff PLLC, Hattiesburg, MS, Robert Gambrell, Gambrell & Associates, PLLC, Oxford, MS, Richard Scott Pietrowski, Jackson, MS, Harold O. Grissom, Jr., Gulfport, MS, Jon C. Thornburg, Gambrell & Stone, PLLC, Biloxi, MS, for Cross-Claimants and Cross-Defendants.

MEMORANDUM OPINION AND ORDER DETERMINING VALIDITY, EXTENT, AND PRIORITY OF LIENS

NEIL P. OLACK, Bankruptcy Judge.

This matter came before the Court for trial on June 25 and June 26, 2009, (the "Trial") on the Crossclaim To Determine Validity, Extent and Priority of Liens (the "Crossclaim") in the above-styled adversary proceeding (the "Adversary"). (Dkt. No. 3).¹ At Trial, Ann B. Shavers ("Ann Shavers") appeared pro se, Michael V. Ratliff represented James A. Koerber ("Koerber"), Robert Gambrell represented Herbert J. Stelly, Jr. ("Stelly"), and William H. Leech and Danny E. Ruhl represented JPMorgan Chase Bank, N.A. ("Chase"). The Court,² having considered the evidence presented at Trial, determines on the Crossclaim as to the priority of liens in this Adversary, as follows: (1) Ann Shavers should be ranked first in the principal amount of $93,946.51; (2) Koerber should be ranked second in the principal amount of $48,531.67; (3) Stelly should be ranked third in the principal amount of $250,000; and (4) Chase should be ranked fourth in the principal amount of $498,967.11. The Court further determines that these liens attach in that order to the net sales proceeds that are currently being held in the registry of the Court pursuant to the Consent Order entered on February 7, 2007.³ (Dkt. No. 225).

Introduction

Dwayne M. Murray ("Murray"), chapter 7 trustee for the bankruptcy estate of John E. Shavers ("John Shavers"), filed a Complaint To Avoid, Recover and Preserve Fraudulent Transfers Pursuant to 11 U.S.C. §§ 544(b), 550(a) and 551 (the "Complaint") (Dkt. No. 1) on March 31, 2004, against J. Steven Smith ("Smith"), chapter 7 trustee for the bankruptcy estate of Ariana Lynn Shavers ("Ariana Shavers") in Case No. 03-53855. In his Complaint, Murray sought as relief a judgment (1) declaring the transfer of certain real property, referred to herein as the Bayou Residence,⁴ by John Shavers to his infant daughter, Ariana Shavers, voidable under 11 U.S.C. § 544(b) and Miss.Code Ann. § 15-3-3; (2) recovering the Bayou Residence from the bankruptcy estate of Ariana Shavers under 11 U.S.C. § 550(c); and (3) preserving the Bayou Residence for the benefit of John Shavers's bankruptcy estate. Smith filed his Answer, Counterclaim and Crossclaim on April 14, 2004. (Dkt. No. 3). In his Answer, Smith denied the relief requested by Murray and in his Counterclaim sought a declaratory judgment that the Bayou Residence belonged to Ariana Shavers's bankruptcy estate pursuant to 11 U.S.C. § 541. Smith joined as defendants numerous persons in an attempt to obtain a conclusive determination of the validity, extent, and relative priority of their competing claims in the estate property. (Dkt. No. 3).

On July 9, 2004, this Court entered a judgment approving a settlement reached between the bankruptcy estates of John Shavers and Ariana Shavers in which both trustees agreed to avoid the transfer of the Bayou Residence made on September 23, 2002, by John Shavers to Ariana Shavers pursuant to 11 U.S.C. § 548. (Dkt. No. 20). This settlement allowed that property to be administered by Murray on behalf of the John Shavers's bankruptcy estate. Accordingly, on October 25, 2004, this Court entered a Consent Order dismissing Smith as a defendant/counter-plaintiff and substituting Murray as the sole plaintiff/counter-defendant against the cross-defendants. (Dkt. No. 43).

Ultimately, Murray sold the Bayou Residence for $625,000 and deposited net sale proceeds of $534, 314.95⁵ with the Clerk of this Court until determination of proper distribution among the cross-defendants. (Dkt. No. 229). By Consent Order, this Court dismissed Murray from this Adversary. (Dkt. No. 225). What remains at issue is the validity, extent, and priority of liens against the net sales proceeds, which are insufficient to satisfy all lien claimants. At this point, there are four potential claimants to the fund: Ann Shavers, Koerber, Stelly, and Chase (referred to herein collectively as the "Four Claimants").⁶

Jurisdiction

This Court has jurisdiction over the parties and the subject matter of this Adversary pursuant to 28 U.S.C. § 1334. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(K). Notice of the Trial was proper under the circumstances.

Parties to the Action

A brief description of the parties involved in this Adversary is provided here to facilitate a better understanding of this lien priority dispute:

A. Debtor

John Shavers is the Debtor in this bankruptcy case.

B. Judgment Creditors

Ann Shavers, Stelly, and Koerber (sometimes referred to herein collectively as the "Judgment Creditors") have each obtained judgments against John Shavers and have caused their judgments to be enrolled in The Judgment Roll by the Clerk of the Circuit Court of Harrison County, Mississippi.

1. Ann Shavers

Ann Shavers married John Shavers on June 8, 1968. Ann Shavers filed for divorce in January, 1999 and after two years of litigation was granted a divorce on September 7, 2001, on grounds of habitual cruel and inhuman treatment. See Shavers v. Shavers, 982 So.2d 397 (Miss.2008); (Koerber Ex. 1).⁷ As part of the divorce settlement, John Shavers was awarded the marital home, referred to as the Bayou Residence. The proceeds from the sale of the Bayou Residence are the subject of this Adversary.

2. Stelly

Stelly is an attorney licensed to practice law in Mississippi. Stelly and Scott Gibson, who is also a licensed Mississippi attorney, represented Ann Shavers in her divorce action against John Shavers. John Shavers sued Stelly for alienation of affection, and Stelly obtained a jury verdict against John Shavers on counterclaims for intentional infliction of emotional distress and placing Stelly in a false light in the public eye. (Stelly Ex. No. 2).

3. Koerber

Koerber is a certified public accountant whose area of expertise includes the valuation of marital estates in domestic cases. The chancellor appointed him as an expert in the divorce action between John Shavers and Ann Shavers. The Shavers' marital estate "involved six corporations, real property, investments, and other assets." (Koerber Ex. No. 1).

C. Ariana Shavers

Ariana Shavers is the minor child of John Shavers, born during the pendency of the divorce proceedings, but not the child of Ann Shavers. After his divorce from Ann Shavers (but before enrollment of the judgments obtained against John Shavers by the Judgment Creditors), John Shavers transferred the Bayou Residence to his divorce attorney, B.G. Perry, in his capacity as custodian of the property for the benefit of Ariana Shavers. (Ann Shavers Ex. 3). The transfer, made pursuant to the Mississippi Uniform Transfers to Minors Act ("MUTMA"), Miss.Code Ann. §§ 91-20-1 to 91-20-49, created a custodianship in which B.G. Perry held the property for the benefit of Ariana Shavers.⁸

On August 6, 2003, John Shavers filed a voluntary petition for chapter 7 bankruptcy in this Court on behalf of Ariana Shavers, with B.G. Perry identified as her attorney. (Case No. 03-53855, Dkt. No. 1). Ariana Shavers was then only two years old. (Case No. 03-53855, Dkt. No. 8). The initial Schedules filed in Ariana Shavers's bankruptcy case identified her as the fee simple owner of the Bayou Residence and listed its estimated value as $1.2 million.

D. Bankruptcy Trustees

1. Murray

Murray was the court-appointed chapter 7 trustee for the bankruptcy estate of John Shavers. (Case No. 03-55729, Dkt. Nos. 66, 67). Murray initiated this Adversary to recover the Bayou Residence allegedly transferred to Ariana Shavers fraudulently by her father, John Shavers. (Dkt. No. 1).

2. Smith

Smith was the chapter 7 trustee in Ariana Shavers's bankruptcy case. (Case No. 03-53855, Dkt. Nos. 50, 119).

E. Bank/Lien Creditor

Chase is the servicer of a $500,000 loan made on September 6, 2002, to John Shavers, who defaulted on the loan on April 1, 2003. The loan was originally made by Long Beach Mortgage Company ("Long Beach"), a Delaware corporation with its principal place of business in California. (Chase Ex. 3). To secure the loan, John Shavers executed a deed of trust in favor of Long Beach on the Bayou Residence.

Washington Mutual Bank ("WaMu") succeeded to the interests of Long Beach, but during the pendency of this proceeding, was declared insolvent and went into receivership. (Dkt. No. 285). Chase purchased many of the assets of WaMu, including the servicing rights for the subject loan. (Chase Exs. 14, 15). An Agreed Order entered by this Court on January 29, 2009, substituted Chase in place of WaMu as the real party in interest.⁹ (Dkt. No. 286). Chase filed a proof of claim in the bankruptcy case seeking $498,967.11, the principal balance due on the loan, plus interest. (Case No. 03-55729, Claim No. 30).

Court Proceedings

A. State Court

The divorce proceedings between Ann Shavers and John Shavers directly resulted in two judgments against John Shavers and indirectly led to a third judgment against him. (Koerber Ex. 1) The Chancery Court of Harrison...