In re Unglaub
| Decision Date | 24 October 2005 |
| Docket Number | Bankruptcy No. 04 B 19902.,Adversary No. 04 A 03943. |
| Citation | 332 B.R. 303 |
| Parties | In re Robert K. UNGLAUB, Jr., Debtor. Gina B. Krol, Chapter 7 Trustee, Plaintiff, v. Robert K. Unglaub, Jr. and Nancy L. Unglaub, Defendants. |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
Barry A. Chatz, Miriam R. Stein, Patti S. Levinson, Chicago, IL, for Plaintiff.
John M. Kennelly, Oak Park, IL, for Defendant.
This matter comes before the Court on the complaint filed by Gina B. Krol, the Chapter 7 trustee (the "Trustee") of the estate of the debtor, Robert K. Unglaub, Jr. ("Robert"), against Robert and his spouse, Nancy L. Unglaub ("Nancy") alleging that Robert and Nancy encumbered certain Colorado real property in favor of Nancy and that such encumbrance was a fraudulent transfer. For the reasons set forth herein, the Court grants partial judgment in favor of the Trustee and finds that the recording of the junior mortgage given to Nancy by Robert on the Colorado real property was a fraudulent transfer pursuant to COLO.REV.STAT. §§ 38-8-105(1)(a) and (b) and 38-8-106(1). Under 11 U.S.C. § 544(b)(1), the Trustee may avoid the mortgage to Nancy on the Colorado real property. Further, the Trustee's cause of action under COLO.REV.STAT. § 38-8-106(2) is time barred. Even if that action was not time barred, the Court finds that she has failed to prove a prima facie case under § 38-8-106(2). The Trustee's request for damages, prejudgment interest, and attorney's fees is hereby denied. The Trustee's taxable costs will be assessed against Robert and Nancy under 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 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. It is a core proceeding under 28 U.S.C. § 157(b)(2)(H).
Many of the facts in this matter are undisputed. Robert testified that from 1986 to March 2001, he was the chief executive officer of The Spectrum Group, Inc. ("Spectrum") and owned 95% of the company. Between 1997 and 2000, Robert executed several personal guaranties, wherein he assumed personal liability for commercial loans that Spectrum obtained from American National Bank & Trust Company of Chicago ("ANB").1 Trustee Group Ex. No. 2.
In February of 2000, Nancy obtained a $500,000.00 home equity line of credit from ANB. Trustee Ex. Nos. 7 and 8. The line of credit was secured by real property that Nancy owned in Hinsdale, Illinois. Trustee Ex. No. 7. It is undisputed that Robert did not have an ownership interest in this Hinsdale property, which Nancy and Robert occupied as their residence. Robert was listed as an applicant on the home equity application. Id. However, he was not listed as a borrower on the home equity agreement and disclosure. Trustee Ex. No. 8. Nevertheless, Robert was an authorized signatory on the checks that were written from that line of credit. Trustee Ex. No. 9.
In August 2000, ANB required Robert to pledge marketable securities in an amount in excess of $1,444,000.00 to secure the personal guaranties he had executed on Spectrum's loans from ANB. Trustee Ex. No. 3.
Robert testified that in October of 2000, Nancy loaned him $300,000.00 which she obtained from the ANB line of credit. On October 27, 2000, in consideration for that loan, Robert executed a promissory note in favor of Nancy. Trustee Ex. No. 11. Robert made no payments to Nancy under the terms of the note. On that same date, Robert granted a junior mortgage in favor of Nancy (the "Mortgage") on real property that he owned which was located at 210 Offerson Road, Unit R-220, St. James Place, Colorado (the "Colorado Property"). Trustee Ex. No. 12. The Mortgage was not recorded, however, until April 23, 2003 in Eagle County, Colorado. Id. It is unclear from the evidence, including the testimony of Robert and Nancy, why the Mortgage was not recorded for over two years after it was granted. Robert testified that the Colorado Property was worth approximately $850,000.00 at the time the Mortgage was recorded and that it was encumbered by a first mortgage in the amount of $450,000.00.
On October 19, 2000, Robert loaned Spectrum $300,000.00. Trustee Ex. No. 6. The loan to Spectrum was evidenced by a promissory note executed by the chief financial officer of Spectrum in favor of Robert. Trustee Ex. No. 10. Spectrum made no payments to Robert under the terms of the note. As of October 31, 2000, Spectrum's net income was more than $3,750,000.00 below projections for the year 2000. Trustee Ex. No. 5. In addition, Spectrum had a net loss of $2,586,126.00. Id. Robert admitted that as of October 2000, Spectrum was balance-sheet insolvent.
Robert testified that Spectrum ceased operations in February of 2001. Some time during 2001, ANB began discussions with Robert about the personal guaranties he executed to secure the loans of Spectrum. Robert testified that, at that same time, Spectrum defaulted on the ANB loans. On March 3, 2003, ANB commenced an action against Robert in Illinois state court based on his failure to honor the personal guaranties. Trustee Ex. No. 1, Ex. No. 1. At the time of the litigation against Robert, ANB held a security interest in the Colorado Property (the "ANB Mortgage") through a note and deed of trust executed by Robert. Trustee Ex. No. 1, Ex. Nos. 2-5. On June 13, 2003, in connection with the Illinois state court litigation, ANB sent a letter to Robert demanding payment of $1,379,085.42 and notifying him that his failure to make such payment would result in ANB commencing a mortgage foreclosure action against the Colorado Property. Trustee Ex. No. 15.
On June 16, 2003, ANB filed a motion for summary judgment in the Illinois state court litigation. Trustee Ex. No. 1, Ex. No. 8. Robert failed to pay the amounts due to ANB, and on August 18, 2003, ANB commenced a mortgage foreclosure action on the Colorado Property. Trustee Ex. No. 1, Ex. No. 9. On September 29, 2003, Robert paid the ANB Mortgage on the Colorado Property. On October 24, 2003, the Illinois state court entered summary judgment in favor of ANB and against Robert. Trustee Ex. No. 1, Ex. No. 10.
Robert admits that at the time the Mortgage was recorded, he was indebted to ANB. Further, he admits that he retained possession or control of the Colorado Property when the Mortgage was recorded. Robert testified that the Colorado Property was the only real property he owned at this time. He acknowledged that the recording of the Mortgage decreased the amount available to his other creditors. In addition, Robert stated that Spectrum was unable to pay on the loan made to it by him. Finally, Robert admits that he was sued by ANB and threatened with suit before the recording of the Mortgage. Nancy testified that she did not provide Robert with any additional consideration when the Mortgage was recorded.
Robert filed a voluntary Chapter 7 bankruptcy petition on May 21, 2004. The Trustee filed the instant adversary proceeding on October 26, 2004. Trustee Ex. No. 1. The Trustee alleges in her complaint that the recording of the Mortgage constituted a fraudulent transfer because it was done with the intent to hinder, delay, or defraud Robert's creditors and was recorded without receiving a reasonably equivalent value. The Trustee seeks to avoid the Mortgage. In addition, the Trustee requests damages, in an unspecified amount, pre-judgment interest, attorney's fees, and costs. Robert and Nancy set forth several affirmative defenses in their answer to the complaint.2
The Trustee seeks to avoid the Mortgage granted to Nancy on the Colorado Property pursuant to 11 U.S.C. § 544(b)(1), which provides in pertinent part as follows:
[T]he trustee may avoid any transfer of an interest of the debtor in property ... that is voidable under applicable law by a creditor holding an unsecured claim that is allowable under section 502 of this title or that is not allowable only under section 502(e) of this title.
11 U.S.C. § 544(b)(1). This section expressly authorizes a trustee to avoid a transfer voidable under applicable state law. Id.; see also Summers v. Perkins, 81 P.3d 1141, 1142-43 (Colo.Ct.App.2003). Furthermore, if a transfer is avoided under § 544(b)(1), the property itself or the value of that property can be recovered for the benefit of all of the creditors under 11 U.S.C. § 550 from, among others, "the initial transferee of such transfer or the entity for whose benefit such transfer was made[.]" 11 U.S.C. § 550(a)(1); see also Summers, 81 P.3d at 1143.
In a case under § 544(b)(1), the trustee has the rights of an unsecured creditor to avoid transactions that can be avoided by such creditor under state law. In re Image Worldwide, Ltd., 139 F.3d 574, 576-77 (7th Cir.1998). The trustee need not identify the creditor, so long as an unsecured creditor exists. Id. at 577; In re Leonard, 125 F.3d 543, 544 (7th Cir.1997). The transaction can be avoided completely even if the trustee cannot produce creditors whose liens total more than the value of the property. Leonard, 125 F.3d at 544-45. In the matter at bar, the Trustee has demonstrated that Robert was indebted to ANB at the time he recorded the Mortgage and that he created a security interest in the Colorado Property in favor of Nancy. Specifically, ANB filed a proof of claim in Robert's case in the sum of $1,319,104.58. Accordingly, the Trustee may proceed against Robert and Nancy under state law.
The applicable state law here is the Colorado Uniform Fraudulent Transfer Act, COLO.REV.STAT. §...
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