In re Young

• Decision Date: 14 April 1993
• Docket Number: Bankruptcy No. 4-92-871,Adv. No. 4-92-157.,Civ. No. 4-93-76
• Citation: 152 BR 939
• Parties: In re Bruce YOUNG and Nancy Young, Debtors. Julia A. CHRISTIANS, Trustee, Plaintiff, v. CRYSTAL EVANGELICAL FREE CHURCH, Bruce Young, and Nancy Young, Defendants.
• Court: U.S. District Court — District of Minnesota

152 B.R. 939 (1993)

In re Bruce YOUNG and Nancy Young, Debtors Julia A. CHRISTIANS, Trustee, Plaintiff, v. CRYSTAL EVANGELICAL FREE CHURCH, Bruce Young, and Nancy Young, Defendants.

Bankruptcy No. 4-92-871, Civ. No. 4-93-76, Adv. No. 4-92-157.

United States District Court, D. Minnesota, Fourth Division.

April 14, 1993.

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Julia A. Christians, Lapp, Laurie, Libra, Abramson & Thomson, Minneapolis, MN, trustee.

Kenneth Corey-Edstrom, Henningson & Snoxell, Brooklyn Center, MN, for defendant Crystal Evangelical Free Church.

MEMORANDUM AND ORDER

MacLAUGHLIN, District Judge.

This matter is before the Court on defendant Crystal Evangelical Free Church's appeal of the bankruptcy court's¹ order granting summary judgment in favor of plaintiff Julia A. Christians, the trustee. The bankruptcy court's order will be affirmed.

FACTS

The parties stipulated to the following facts. Bruce and Nancy Young (debtors) filed a Chapter 7 bankruptcy petition on February 3, 1992. Plaintiff Julia A. Christians is the trustee in their case. In the year immediately preceding the debtors' filing, debtors contributed a total of $13,450 to defendant Crystal Evangelical Free Church. Debtors were insolvent at the time the contributions were made. In addition to their financial contributions, debtors held a variety of volunteer positions in the church. At no time did the church require debtors to pay any membership or attendance fee, but the church does teach that people should make regular financial contributions.

The trustee brought an adversary proceeding seeking to recover the contributions as "fraudulent transfers" within the meaning of the Bankruptcy Code. The trustee and the church both moved for summary judgment. The bankruptcy court granted the trustee's motion and denied the church's motion. Christians v. Crystal Evangelical Free Church (In re Young), 148 B.R. 886, 897 (Bankr.D.Minn.1992). The church appeals.

DISCUSSION

I. Summary Judgment Standard

The Court reviews de novo the bankruptcy court's grant of summary judgment. McKee v. Federal Kemper Life Assur. Co., 927 F.2d 326, 328 (8th Cir.1991); Steven v. Pike County Bank, 829 F.2d 693, 695 (8th Cir.1987). A movant is not entitled to summary judgment unless the movant can show that no genuine issue exists as to any material fact. Fed.R.Civ.P. 56(c). In considering a summary judgment motion, a court must determine whether "there are any genuine factual issues that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986). The role of a court is not to weigh the evidence but instead to determine whether, as a matter of law, a genuine factual conflict exists. AgriStor Leasing v. Farrow, 826 F.2d 732, 734 (8th Cir.1987). "In making this determination, the court is required to view the evidence in the light most favorable to the nonmoving party and to give that party the benefit of all reasonable inferences to be drawn from the facts." AgriStor Leasing, 826 F.2d at 734. When a motion for summary judgment is properly made and supported with affidavits or other evidence as provided in Fed.R.Civ.P. 56(c), then the nonmoving party may not merely rest upon the allegations or denials of the party's pleading, but must set forth specific facts, by affidavits or otherwise, showing that there is a genuine issue for trial. Lomar Wholesale Grocery, Inc. v. Dieter's Gourmet Foods, Inc., 824 F.2d 582, 585 (8th Cir.1987), cert. denied, 484 U.S. 1010, 108 S.Ct. 707, 98 L.Ed.2d 658 (1988). Moreover, summary judgment must be entered against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986).

II. Overview

The parties raise several issues. Initially, the Court must determine whether, as a matter of statutory interpretation, the bankruptcy court correctly concluded that debtors did not receive "reasonably equivalent value in exchange for" the contributions. If the Court concludes that the bankruptcy court correctly interpreted the statute, the church requests that the Court analyze whether that interpretation of the statute violates the Free Exercise Clause or Establishment Clause of the Constitution. The constitutional analysis can be divided into three stages. First, the Court must decide whether to allow the church to raise constitutional arguments for the first time on appeal. Second, if the Court allows the church to raise those arguments, the Court must decide whether the church has standing to raise constitutional objections on behalf of debtors. Third, if the Court concludes that the church has standing, the Court must then address the merits of the church's constitutional arguments.

III. Fraudulent Transfers Under the Bankruptcy Code

A. Applicable Law

The first issue before the Court is whether the contributions to the church were avoidable transfers within section 548 of the Bankruptcy Code. Section 548 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 voluntarily or involuntarily—

. . . .

(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. . . .

11 U.S.C. § 548(a) (emphasis added). For the Court to find that a fraudulent transfer occurred, the trustee must prove the following:

1. there was a transfer of an interest of the debtor in property;

2. the transfer was made within one year before the date of the filing of the petition;

3. the debtor was insolvent on the date the transfer was made; and

4. the debtor received less than a reasonable equivalent value in exchange for the transfer.

First Nat'l Bank in Anoka v. Minnesota Utility Contracting, Inc. (In re Minnesota Utility Contracting, Inc.), 110 B.R. 414, 417 (D.Minn.1990). The parties stipulated that the first three elements were satisfied; the only issue is whether the debtors received "reasonably equivalent value in exchange for" the contributions. Christians, 148 B.R. at 890.

In determining whether the debtors received reasonably equivalent value, the Court must examine all aspects of the transaction and carefully measure the value of all benefits and burdens to the debtor, direct or indirect. Pembroke Develop. Corp. v. Commonwealth Savings & Loan Assoc. (In re Pembroke Develop. Corp.), 124 B.R. 398, 400 (Bankr.S.D.Fla.1991). In other words, a determination of whether the debtor received reasonably equivalent value depends on the facts and circumstances of each case. Minnesota Utility, 110 B.R. at 419; Joshua Slocum, Ltd. v. Boyle (In re Joshua Slocum, Ltd.), 103 B.R. 610, 618 (Bankr.E.D.Pa.), aff'd, 121 B.R. 442 (E.D.Pa.1989). The burden is on the trustee to establish that debtors did not receive reasonably equivalent value. Mellon Bank, N.A. v. Metro Communications, Inc., 945 F.2d 635, 650 (3d Cir.1991), cert. denied, ___ U.S. ___, 112 S.Ct. 1476, 117 L.Ed.2d 620 (1992); Minnesota Utility, 110 B.R. at 417-19.

The Court has previously addressed the issue of what constitutes reasonably equivalent value. In Minnesota Utility, a bank extended Minnesota Utility Contracting, a closely-held corporation, a revolving line of credit that was secured by assets of Minnesota Utility. Later, the bank agreed to extend additional credit to Minnesota Utility but only if another closely-held corporation, MUC Leasing, which was owned by the same shareholders that owned Minnesota Utility, granted the bank a security interest in its assets. Both Minnesota Utility and MUC Leasing filed for bankruptcy within one year of the extension of additional credit. The issue was whether MUC Leasing had received reasonably equivalent value for the security interest it granted the bank. The bankruptcy court held that indirect benefits, under certain circumstances, may constitute reasonably equivalent value but that there was no evidence that MUC Leasing received any indirect benefits.

On appeal, the Court stated that "in determining whether a debtor has received fair consideration for the transfer, the Court should consider the purpose of the requirement, which is to conserve the debtor's estate for the benefit of creditors." Id. at 420. The Court then held that while indirect benefits could constitute reasonably equivalent value under some circumstances, the benefits received must be "fairly concrete." Id. The Court affirmed the bankruptcy court's order because there was no evidence in the record that MUC Leasing received "fairly concrete" indirect benefits.

B. The Bankruptcy Court's Order

The bankruptcy court described the analysis as two-fold. Did the debtors receive "value?" If so, was that "value" given "in exchange for" the contributions? In addressing the question of whether debtors received "value," the bankruptcy court looked to the statutory definition of that term. For the purposes of section 548—

"value" means property, or satisfaction or securing of a present or antecedent debt of the debtor, but does not include an unperformed promise to furnish support to the debtor or to a relative of the debtor.

11 U.S.C. § 548(d)(2)(A) (emphasis added). Because the church did not satisfy or secure a present or antecedent debt of the debtors in exchange for the donations, the bankruptcy court refined the inquiry to address whether the debtors received "property" in return. 148 B.R. at...