John K Fort v. Cilwa (In re Re)

• Decision Date: 15 April 2016
• Docket Number: Adv. Pro. No. 15-80172-HB,C/A No. 15-00263-HB
• Court: U.S. Bankruptcy Court — District of South Carolina
• Parties: In re, Anthony J Cilwa, Debtor(s). John K Fort, Plaintiff(s), v. Anthony J Cilwa Christopher Cilwa, Defendant(s).

In re, Anthony J Cilwa, Debtor(s).John K Fort, Plaintiff(s), v. Anthony J Cilwa Christopher Cilwa, Defendant(s).

C/A No. 15-00263-HB

Adv. Pro. No. 15-80172-HB

UNITED STATES BANKRUPTCY COURT DISTRICT OF SOUTH CAROLINA

April 15, 2016

Chapter 7

ORDER GRANTING MOTION FOR SUMMARY JUDGMENT AS TO DEFENDANT ANTHONY J. CILWA

THIS MATTER came before the Court for hearing on March 29, 2016, on the Motion for Summary Judgment and Memorandum in Support (collectively, the "Motion") filed by Plaintiff John K. Fort, Chapter 7 Trustee ("Trustee").¹ Defendant Anthony J. Cilwa ("Debtor") filed a response.² Debtor was present at the hearing along with Trustee and Trustee's counsel, Joshua Hudson.

Pursuant to Fed. R. Civ. P. 56, made applicable to this proceeding by Fed. R. Bankr. P. 7056, and for the reasons set forth herein, the Court finds that the Motion should be granted as to Defendant Anthony J. Cilwa.

FACTS AND PROCEDURAL HISTORY

On January 18, 2015, Debtor filed a voluntary petition for Chapter 7 relief and Trustee was appointed. Creditor Bruce P. Kriegman³ ("Kriegman") is the only creditor to file a claim in Debtor's bankruptcy case. In May 2015, Kriegman filed an unsecured claim in the amount of $376,781.02, arising from a lawsuit concerning Debtor's alleged involvement in a Ponzi Scheme. That lawsuit was pending in the District Court for the Eastern District of Washington at the time Debtor filed for bankruptcy relief. The Court entered an order on December 1, 2015, overruling Debtor's objection to Kriegman's claim and allowing the claim as filed.⁴

Trustee initiated this adversary proceeding for the benefit of creditors on September 14, 2015. He alleges that after the bankruptcy filing and without Court authorization, Debtor sold property of the estate located in South Carolina and used proceeds therefrom to purchase another property in Florida, which Debtor later transferred co-defendant Christopher Cilwa ("Co-Defendant"), his adult son. Trustee alleges he is entitled to turnover of the net proceeds of the initial sale of estate property, the transfer of the purchased property is avoidable pursuant to 11 U.S.C. § 549,⁵ and he seeks avoidance of the transfer and turnover of property pursuant to §§ 549 and 542(a).

The property purchased post-petition and transferred to Co-Defendant is located at 4920 Long Meadow Drive, Leesburg, Florida 24784 (the "Florida Property"). The Court previously granted Trustee's demand for a Temporary Restraining Order, restraining Defendants:

from conveying, transferring, disposing of, selling, spending, withdrawing, liquidating or taking any actions that would in any way deplete, diminish, or reduce the assets of the bankruptcy estate, including but not limited to real estate and improvements known and designated as [the Florida Property], as well as the net proceeds from the sale of real estate and improvements known and designated as 1229 Sunset Lane, Anderson County, South Carolina 29624 (the "Sunset Property") . . .⁶

Thereafter, on October 30, 2015, Debtor, through counsel, filed an answer to Trustee's complaint admitting to the sale of the Sunset Property in March 2015 and the use of a portion of the proceeds therefrom to purchase the Florida Property on April 17, 2015, and the subsequent transfer of the Florida Property to Co-Defendant in exchange for $10 consideration on June 12, 2015.⁷ Debtor's Answer also admitted that this adversary proceeding arises in Debtor's bankruptcy case, the Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. §§ 157 and 1134 and 11 U.S.C. § 549, and this matter is a core proceeding under 28 U.S.C. § 157.

After both Defendants answered, the Court issued an order on November 2, 2015, requiring the parties to review the cases of Stern v. Marshall, 131 S. Ct. 2594, 180 L. Ed. 2d 475 (2011), Exec. Benefits Ins. Agency v. Arkison, 134 S. Ct. 2165, 2166, 189 L. Ed. 2d 83 (2014), and Wellness Int'l Network, Ltd. v. Sharif, 135 S. Ct. 1932, 191 L. Ed. 2d 911 (2015), and report whether those decisions present any challenges to entry of a final order or judgment by the bankruptcy court.⁸ On November 23, 2015, the Court received Debtor's reply, through counsel, which stated that he was not aware of any challenges that may be presented by the aforementioned Supreme Court cases.⁹ A status conference was held on December 8, 2015, which Debtor's counsel attended. On December 10, 2015, the Court entered an order findingthat all parties consented to entry of a final order or judgment in this proceeding¹⁰ and due notice was given to the parties.

Trustee filed this Motion on January 15, 2016, and a brief in support was filed on February 1, 2016. Trustee presented Exhibits A - M in support of the Motion, which establish the undisputed facts as follows:

1. On May 16, 2005, the Sunset Realty Trust was established by Debtor and his wife as grantors, with Debtor listed as the trustee. The beneficiaries were Debtor and his wife's adult children, Co-Defendant and Allison Enwright. The trust was recorded with the Anderson County Register of Deeds on May 26, 2005.

2. On May 24, 2005, the Sunset Realty Trust purchased the Sunset Property for $430,000.00.

3. On February 2, 2012, an amendment to the beneficiaries of the Sunset Realty Trust was filed with the Anderson County Register of Deeds, which changed the beneficiaries to Debtor and his wife. Thereafter, on March 22, 2012, another amendment to the beneficiaries of the Sunset Realty Trust was filed with the Anderson County Register of Deeds, which changed the beneficiaries back to Co-Defendant and Allison Enwright. On May 16, 2012, another amendment to the beneficiaries of the Sunset Realty Trust was filed with the Anderson County Register of Deeds, which stated that the beneficiaries were indicated on a separate list maintained by the trustee of the Sunset Realty Trust. At the time of this amendment, Debtor signed as the trustee of the Sunset Realty Trust.

4. On March 21, 2013, Debtor, as trustee of the Sunset Realty Trust, conveyed the Sunset Property to Co-Defendant, and provided a life estate interest for Debtor and his wife. Thereafter, on August 26, 2013, an amendment to the Sunset Realty Trust was filed amending it to an irrevocable trust.

5. On June 24, 2015, Debtor was examined by Trustee's counsel pursuant to Rule 2004 of the Federal Rules of Bankruptcy Procedure (the "2004 Exam"). At the 2004 Exam, Debtor admitted that the Sunset Property was sold post-petition in March 2015.

6. Debtor also admitted that he used part of the sale proceeds to purchase a new residence, the Florida Property, on April 17, 2015 - three months after filing his bankruptcy. When the Florida Property was purchased, the deed was issued solely to Debtor individually.

7. Thereafter, on June 12, 2015, Debtor executed a deed transferring ownership in the Florida Property to Co-Defendant in exchange for $10 consideration. Debtor maintained a life estate.

Debtor's response to the Motion does not dispute the facts set forth above, but instead states there are no creditors and all of Debtor's creditors have been paid. Debtor also appeared at the hearing and argued that no debt is owed to any creditor in the underlying bankruptcy case. He submitted to the Court an "Order Memorializing the Court's Rulings," entered by the District Court for the Eastern District of Washington on March 24, 2016. This order granted Kriegman's oral motion to voluntarily dismiss without prejudice the pre-petition lawsuit brought against Debtor and denied Debtor's request for sanctions against Kriegman for filing a false proof of claim. The Court cannot determine from this exhibit that Kriegman no longer asserts a claim against Debtor's bankruptcy estate; but rather, the record in this casesupports a contrary conclusion.¹¹ This record includes Kriegman's proof of claim, asserting an unsecured claim in the amount of $376,781.02, with supporting documentation attached. The record also includes an order from this Court that found as a fact that Kriegman presented prima facie evidence of the validity and amount of the claim pursuant to Fed. R. Bankr. P. 3001(f) and ample information about the history of the relationship between Kriegman and Debtor and the basis for Kriegman's claim. This order also found that Debtor's objections to Kriegman's claim were deficient in fact and legal theory and failed to provide any supporting facts or law to call into question the validity or amount of Kriegman's claim. Thereafter, the Court denied Debtor's motion to reconsider or vacate the prior order allowing Kriegman's proof of claim.

After Debtor's counsel was allowed to withdraw from the case,¹² Debtor submitted the following, filed without the assistance of counsel:

(1) Motion to Dismiss Motion for Summary Judgment and Adversary Complaint filed by Plaintiff - this motion was interpreted by the Court as a motion to dismiss for lack of subject matter jurisdiction and denied by an Order entered on February 23, 2016;¹³

(2) Motion and explanation to the Court, in order to (a) vacate the current 'default' for failing to object to the proof of claim, on a timely basis, (b) extend the deadline to object - this motion was addressed by the Court in an order entered in the Debtor's bankruptcy case, which denied any request by Debtor for the Court to reconsider or vacate its prior order allowing Kriegman's proof of claim;¹⁴ and (3) a motion to withdraw the reference of this adversary proceeding pursuant to 28 U.S.C. § 157(d), which is pending in the District Court.¹⁵ This motion challenges this Court's authority to enter a final order in this matter. Co-Defendant did not join in that motion and Debtor did not request any stay of this matter pursuant to Fed. R. Bankr. P. 5011(c) pending a determination of the motion by the District Court.

DISCUSSION AND CONCLUSIONS OF LAW

I. PENDING MOTION FOR WITHDRAWAL OF THE REFERENCE

Fed. R. Bankr. P. 5011(c) governs whether an adversary proceeding or a...