Lim v. Combs (In re Combs)

• Citation: 626 B.R. 300
• Decision Date: 09 March 2021
• Docket Number: Case No. 20-44989,Adv. Pro. No. 20-4358
• Parties: IN RE: Juana P. COMBS, Debtor. K. Jin Lim, Trustee, Plaintiff, v. Wayne K. Combs and Janice Y. Combs, Defendants.
• Court: United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — Eastern District of Michigan

626 B.R. 300

IN RE: Juana P. COMBS, Debtor.

K. Jin Lim, Trustee, Plaintiff,

v.Wayne K. CombsandJanice Y. Combs, Defendants.

Case No. 20-44989

Adv. Pro. No. 20-4358

United States Bankruptcy Court, E.D. Michigan, Southern Division.

Signed March 9, 2021

Sandra L. O'Connor, Sandra O'Connor Law PLLC, Troy, Michigan, Attorney for Plaintiff, K. Jin Lim, Trustee

Wayne K. Combs, defendant pro se

Janice Y. Combs, defendant pro se

OPINION REGARDING THE DEFENDANTS’ MOTION TO DISMISS THIS ADVERSARY PROCEEDING AND THE PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT

Thomas J. Tucker, United States Bankruptcy Judge

I. Introduction

This case is about the Chapter 7 bankruptcy Trustee's "strong arm" avoidance powers, under Bankruptcy Code § 544(a). In 2012, the bankruptcy Debtor executed and delivered a quit claim deed, conveying certain real property to her parents, but that deed was never recorded. Several years later, in 2020, the Debtor filed bankruptcy. Now the Trustee seeks to avoid the 2012 transfer, and recover the property, for the benefit of the bankruptcy estate and the Debtor's creditors. As explained below, in this case, the Trustee prevails.

II. Relevant facts and procedural history

Two motions are now before the Court: (1) the motion to dismiss filed by the pro se Defendants, Wayne K. Combs and Janice Y. Combs (the "Defendants") (Docket # 14, the "Motion to Dismiss"); and (2) the motion for partial summary judgment filed by the Chapter 7 Trustee (the "Trustee") (Docket # 29, the "Motion for Partial Summary Judgment").

The following facts are not disputed.

This adversary proceeding arises from the Chapter 7 bankruptcy case of Juana Combs (the "Debtor"). The Defendants are the parents of the Debtor. The Defendants reside in a single family home located at 19157 Binder, Detroit, Michigan (the "Property"). In a quit claim deed dated June 30, 2011 (the "2011 Deed"), the Property was conveyed from "Valerie R. Burris, a married woman" to "Juana P. Combs, a single woman."¹ Valerie Burris is the sister of Defendant Janice Combs.² The 2011 Deed was signed by "Valerie R. Burris" and a notation on the deed states that it was drafted by "Valerie Burris."³ The 2011 Deed was recorded with the Wayne County, Michigan Register of Deeds, on June 30, 2011.⁴

Nine months later, on April 2, 2012, the Debtor executed a quit claim deed conveying her interest in the Property to the Defendants (the "2012 Deed"). The 2012 Deed was never recorded.⁵

The Debtor, acting without an attorney, filed her Chapter 7 bankruptcy case on April 13, 2020. On Schedule A/B of her bankruptcy schedules, the Debtor listed an interest in the Property.⁶ The Debtor listed the Property and named the Defendants as owners of the Property, in response to question number 23 in Part 9 of the Statement of Financial Affairs, "Do you hold or control any property that someone else owns? Include any property you borrowed from, are storing for, or hold in trust for someone."⁷

The Trustee filed an adversary complaint (the "Complaint) alleging that, because the 2012 transfer of the Debtor's interest in the Property was not perfected as of the petition date, the Trustee can avoid the 2012 transfer. The Trustee relies on the "strong arm" avoidance powers under the Bankruptcy Code, 11 U.S.C. § 544(a). Specifically, the Trustee asserts the rights of a hypothetical judicial lien creditor under § 544(a)(1) ; a hypothetical unsatisfied execution creditor under § 544(a)(2) ; and a hypothetical bona fide purchaser under § 544(a)(3).⁸ The Complaint further alleges that the Property is "recoverable from [the Defendants] pursuant to 11 U.S.C. § 550(a)(1) as both initial transferees and the entities for whose benefit the [2012] transfer of the property was made."⁹

The Defendants filed a motion to dismiss the Complaint.¹⁰ The Trustee filed a motion for partial summary judgment, based on § 544(a)(3) (avoidance by hypothetical bona fide purchaser).¹¹ The Court held a hearing on the motions, and took them under advisement. The Court has considered all of the oral and written arguments of the parties, and all of the briefs and exhibits filed by the parties. For the reasons stated below, the Court must deny the Defendants’ Motion to Dismiss and grant the Trustee's Motion for Partial Summary Judgment.

III. Jurisdiction

This Court has subject matter jurisdiction over the Chapter 7 bankruptcy case and over this adversary proceeding under 28 U.S.C. §§ 1334(b), 157(a), and 157(b)(1), and Local Rule 83.50(a) (E.D. Mich.). This is a core proceeding under 28 U.S.C. § 157(b)(2)(O).

This proceeding also is "core" because it falls within the definition of a proceeding "arising under title 11" and of a proceeding "arising in" a case under title 11. See 28 U.S.C. § 1334(b). Matters within either of these categories are deemed to be core proceedings. Allard v. Coenen (In re Trans-Industries, Inc. ), 419 B.R. 21, 27 (Bankr. E.D. Mich. 2009). This is a proceeding "arising under title 11" because it is "created or determined by a statutory provision of title 11," id. , including the provisions of 11 U.S.C. §§ 544(a) and 550(a)(1) cited above. This proceeding is one "arising in" a case under title 11, because it is a proceeding that "by [its] very nature, could arise only in bankruptcy cases." Id.

IV. Standards applicable to the motion to dismiss and the summary judgment motion

In Wahrman v. Bajas (In re Bajas ), 443 B.R. 768, 770-71 (Bankr. E.D. Mich. 2011), this Court discussed the standard for motions to dismiss under Fed. R. Civ. P. 12(b)(6). The Court incorporates by reference the standard stated in Bajas , and has applied that standard in deciding the Defendants’ Motion to Dismiss.

In considering whether summary judgment should be granted, the Court has applied the standards governing motions for summary judgment under Fed. R. Civ. P. 56, which the Court now adopts from its prior opinion in the case of Schubiner v. Zolman (In re Schubiner ), 590 B.R. 362, 376-77 (Bankr. E.D. Mich. 2018) :

This Court has previously described the standards governing a motion for summary judgment, as follows:

Fed.R.Civ.P. 56(a), applicable to bankruptcy adversary proceedings under Fed. R. Bankr. P. 7056, provides that a motion for summary judgment "shall" be granted "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." In Cox v. Kentucky Dep't of Transp. , 53 F.3d 146, 149–50 (6th Cir.1995), the court elaborated:

The moving party has the initial burden of proving that no genuine issue of material fact exists and that the moving party is entitled to judgment as a matter of law. To meet this burden, the moving party may rely on any of the evidentiary sources listed in Rule 56(c) or may merely rely upon the failure of the nonmoving party to produce any evidence which would create a genuine dispute for the [trier of fact]. Essentially, a motion for summary judgment is a means by which to challenge the opposing party to ‘put up or shut up’ on a critical issue.

If the moving party satisfies its burden, then the burden of going forward shifts to the nonmoving party to produce evidence that results in a conflict of material fact to be resolved by [the trier of fact]. In arriving at a resolution, the court must afford all reasonable inferences, and construe the evidence in the light most favorable to the nonmoving party. However, if the evidence is insufficient to reasonably support a ... verdict in favor of the nonmoving party, the motion for summary judgment will be granted. Thus, the mere existence of a scintilla of evidence in support of the [nonmoving party's] position will be insufficient; there must be evidence on which the [trier of fact] could reasonably find for the [nonmoving party].

...

Finally, the Sixth Circuit has concluded that, in the "new era" of summary judgments that has evolved from the teachings of the Supreme Court in Anderson [v.Liberty Lobby, Inc ., 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) ], Celotex [Corp . v. Catrett , 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) ] and Matsushita [Electric Indus. Co., Ltd. v. Zenith Radio Corp ., 475 U.S. 574, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) ], trial courts have been afforded considerably more discretion in evaluating the weight of the nonmoving party's evidence. The nonmoving party must do more than simply show that there is some metaphysical doubt as to the material facts. If the record taken in its entirety could not convince a rational trier of fact to return a verdict in favor of the nonmoving party, the motion should be granted.

Id. (internal quotation marks and citations omitted). In determining whether the moving party has met its burden, a court must "believe the evidence of the nonmovant, and draw all justifiable inferences in favor of the nonmovant." Ingram v. City of Columbus , 185 F.3d 579, 586 (6th Cir.1999) (relying on Russo v. City of Cincinnati , 953 F.2d 1036, 1041–42 (6th Cir.1992) ).

McCallum v. Pixley (In re Pixley ), 456 B.R. 770, 774–75 (Bankr. E.D. Mich. 2011).

V. Discussion

A. Avoidance of the 2012 transfer under § 544(a)(3)

The Trustee's Motion for Partial Summary Judgment seeks to avoid the 2012 transfer of the Property from the Debtor to the Defendants under 11 U.S.C. § 544(a)(3). Section 544(a)(3) states that:

(a) The trustee shall have, as of the commencement of the case, and without regard to any knowledge of the trustee or of any creditor, the rights and powers of, or may avoid any transfer of property of the debtor or any obligation incurred by the debtor that is voidable by–

...

(3) a bona fide purchaser of real property , other than fixtures, from the debtor, against whom applicable law permits such transfer to be perfected, that obtains the status of a bona fide purchaser and has perfected such transfer at the time of the commencement of the case, whether or not such a purchaser exists.

(emphasis added). Section 544(a)(3) "assumes a transfer from the...