Mashburn v. Arzate (In re Arzate)
| Decision Date | 19 December 2019 |
| Docket Number | Adv. No. 18-01125-JDL,Case No. 16-14260-JDL |
| Citation | 611 B.R. 446 |
| Parties | IN RE: Santiago Junior ARZATE, Debtor. John D. Mashburn, U.S. Bankruptcy Trustee of the Estate of Santiago Junior Arzate, Plaintiffs, v. Santiago Junior Arzate; Santiago Arzate Y El Amigo Inc., a suspended Oklahoma corporation; Santiago Arzate ; Fortunata C. Arzate; and First Fidelity Bank, N.A., an Oklahoma domestic bank, Defendants. |
| Court | U.S. Bankruptcy Court — Western District of Oklahoma |
John Mashburn, Edmond, OK, pro se.
Gary D. Hammond, Oklahoma City, OK, John W. Mee, III, Mee Hoge PLLP, for Defendants.
ORDER DENYING MOTION FOR SUMMARY JUDGMENT
In this adversary proceeding the Chapter 7 trustee seeks summary judgment to avoid a post-petition transfer of title to real property that, as of the commencement of the case, was titled in the names of both the Debtor and a corporation owned by his father. Debtor asserts that he held only bare legal title as a matter of convenience, and that at the time of the filing of the bankruptcy the property was impressed with a resulting trust for the corporation or father's benefit. In response to the Debtor's claim of a resulting trust, the Trustee asserts that he holds the status of a bona fide purchaser who takes the property free of any alleged resulting trust. Before the Court for consideration are the Amended Trustee's Motion for Summary Judgment (the "Motion") [Doc. 25],1 Defendant's (sic) Response to Amended Trustee's Motion for Summary Judgment (the "Response") [Doc. 30], and the Trustee's Reply to Defendants' Response to Trustee's Amended Motion for Summary Judgment (the "Reply") [Doc. 31].2 In accordance with Fed.R.Bankr.P. 7052 and 9014,3 the below constitutes the Findings of Fact and Conclusions of Law upon which the Court bases this Order.
The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334(b) and 28 U.S.C. § 157(a). This is a core proceeding under 28 U.S.C. § 157(b)(2)(A) and (O).
The Defendants are identified as follows: (1) Santiago Junior Arzate is the Debtor ("Debtor"); (2) Santiago Arzate Y El Amigo Inc. is a suspended Oklahoma corporation ("SAYEA"); (3) Santiago Arzate ("Arzate Sr.") is the father of the Debtor and was/is the President of SAYEA; (4) Fortunata C. Arzate is the wife of Arzate Sr. ("F. Arzate") (Debtor, Arzate Sr, and F. Arzate are sometimes referred to collectively as the "Arzate Defendants"); and (5) First Fidelity Bank, NA, is an Oklahoma domestic bank ("Fidelity").
1. On February 19, 1997, by Warranty Deed recorded with the Oklahoma County Clerk in Book 7026 at Page 709, SAYEA obtained title to the following described commercial real property in Oklahoma County, Oklahoma, to wit:
Lots Thirty-One (31) and Thirty-Two, in Block Thirteen (13), in Capitol Hill Addition to the Oklahoma City, Oklahoma County, Oklahoma, according to the recorded plat thereof, the street address being 217/219 SW. 26th St., Oklahoma City, OK 73109.
(the "Property"). [Doc. 1, Complaint, ¶ 13; Doc. 16, Arzate Defendants' Answer, ¶ 13; Doc. 25-1, Motion].
2. By Quitclaim Deed executed on March 12, 2015, and recorded with the Oklahoma County Clerk on March 13, 2015, in Book 12771 at Page 252, SAYEA transferred ownership of the Property to SAYEA and the Debtor. [Doc. 1, Complaint, ¶ 14; Doc. 16, Arzate Defendants' Answer, ¶ 14; Doc. 15, Fidelity's Amended Answer, ¶ 14; Doc. 25-2, Motion].
3. On March 24, 2015, by Quitclaim Deed recorded with the Oklahoma County Clerk in Book 12779 at Page 735, SAYEA purported to transfer ownership of the Property to Arzate Sr. and F. Arzate. [Doc. 1, Complaint, ¶ 15; Doc. 16, Arzate Defendants' Answer, ¶ 15].
4. On March 24, 2015, a Mortgage on the Property in favor of Fidelity executed by Arzate Sr. and F. Arzate was recorded with the Oklahoma County Clerk in Book 12779 at Page 746. [Doc. 1, Complaint, ¶ 17; Doc. 15, Fidelity's Amended Answer, ¶ 17].
5. On March 3, 2016, Debtor executed a Promissory Note in favor of Fidelity in the original amount of $61,474.20. [Doc. 1, Complaint, ¶ 19; Doc. 15, Fidelity's Amended Answer, ¶ 19]. The Promissory Note made reference that the same was given to secure the March 24, 2015 Mortgage in favor of Fidelity. The Promissory Note was not filed of record. [Doc. 1, Complaint, ¶ 20].
6. On October 21, 2016, Debtor filed a petition for relief under Chapter 13 of the United States Bankruptcy Code. [Doc. 1, Complaint, ¶ 10; Doc. 16, Arzate Defendants' Answer, ¶ 10; Doc. 15, Fidelity's Amended Answer, ¶ 10; Petition and Schedules, Case No. 16-14260, Doc. 1]. On September 21, 2018, the case was converted to a proceeding under Chapter 7 of the United States Bankruptcy Code. [Doc. 1, Complaint, ¶ 11; Doc. 16, Arzate Defendants' Answer, ¶ 11; Doc. 15, Fidelity's Amended Answer, ¶ 11; Order Converting, Case No. 16-14260, Doc. 68].
7. In Schedule A of his Schedules filed on October 21, 2016, Debtor listed his interest in the Property. [Doc. 1, Complaint, ¶ 22; Doc. 16, Arzate Defendants' Answer, ¶ 22; Schedule A, Case No. 16-14260, Doc.1, pg. 10]. Debtor's Schedule H lists Arzate Sr. and F. Arzate as co-debtors together with the Debtor on the obligation to Fidelity. [Case No. 16-14260, Doc. 1, pg. 27].
8. On January 23, 2017, the Debtor and Arzate Sr., as President of SAYEA, executed a Quitclaim Deed by which Debtor and SAYEA quitclaimed their interest in the Property to SAYEA. On February 6, 2017, the Quitclaim Deed was recorded with the Oklahoma County Clerk in Book 13353 at Page 1069. [Doc. 1, Complaint, ¶ 23; Doc. 15, Fidelity's Amended Answer, ¶ 23; Doc. 25-6, Quit Claim Deed].
The Trustee's Complaint has two Counts. Count I seeks a determination pursuant to the Warranty Deed of record as of the date of the Debtor's filing for bankruptcy that the bankruptcy estate held a one-half interest in the Property free and clear of any right, title or interest of the Defendants, and that the Debtor's attempt to convey that one-half interest by a Quitclaim Deed after the bankruptcy is an unauthorized post-petition transfer of property voidable pursuant to 11 U.S.C. § 549.4 Count II maintains that title to the Property is clouded based upon the Warranty Deed's language naming Debtor and Defendant SAYEA as having co-ownership of the Property and the Debtor disputing the estate's ownership interest. Count II thus asks the Court to quiet title to the Property by determining that the Debtor's estate holds an undivided one-half interest in the Property free and clear of any interest claimed by the Defendants. The Trustee seeks entry of summary judgment as to the relief sought in both Counts I and II.
The Answer of all the Arzate Defendants to the Trustee's Complaint, while admitting some allegations and not others, did not specify the exact factual basis of any defense to the Trustee's claims. The Arzate Defendants' verified Response to the Trustee's Motion spells out their position. All the Defendants argue that as of the date of filing of bankruptcy the Debtor held only bare legal title subject to a resulting trust for Defendant SAYEA. Debtor and his father, Defendant Arzate Sr., in their Response assert that since its purchase in 1997 the Property was at all times the father's place of business doing so under the name of SAYEA; the Debtor did not pay for the acquisition of the Property; the Debtor made no contribution to the purchase or maintenance of the property; the Debtor never insured the Property; the Debtor never used the Property, and made no payments on the mortgage secured by the Property. Defendants allege that the only reason the Debtor's name appeared on the title to the Property was for the Debtor to use his credit to allow his father to obtain a loan from Fidelity to put a new roof on the Property in 2015 when his father was injured and unable to work. Debtor and the other Defendants thus contend that as of the commencement of the bankruptcy case the Debtor held only bare legal title and not any equitable interest (the resulting trust in favor of his father/SAYEA) such that any interest in the Property was not property of the bankruptcy estate under § 541(d).
In his Reply in support of the Motion, the Trustee first asserts that the fact that the Debtor in executing the Promissory Note in favor of Fidelity in order to personally obtain the funds to replace the roof on the Property and holding himself out to Fidelity as owner of the property refutes his claim that he had no interest in the Property and that there was a resulting trust in favor of his father or SAYEA. Second, the Trustee argues that even if the Court would find the existence of a resulting trust, that fact would have no bearing on the Trustee's entitlement to the relief sought. Specifically, the Trustee argues that pursuant to § 544(a)(3), the Trustee has the rights and powers of a bona fide purchaser of real property, and that under Oklahoma law, a bona fide purchaser without notice would take priority over an unrecorded equitable interest such as the resulting trust alleged by the Debtor and the other Defendants.
The first issue which need be addressed by the Court is whether the facts alleged by the Arzate Defendants create a factual issue regarding the establishment of a resulting trust precluding summary judgment. Secondly, if the Debtor's claims of a resulting trust survive summary judgment scrutiny, the Court must determine whether the Trustee's powers of a bona fide purchaser take priority over the unrecorded equitable interest created by the resulting trust.5 Furthermore, while it is undisputed that the Debtor executed the Quitclaim Deed after the filing of his bankruptcy, the Trustee's power to avoid a post-petition transfer under § 549 is only applicable to transfers of "property of the estate." Lastly, if there was a resulting trust, excluding the Property from "property of the estate", whether it could be made property of the estate by the Trustee's ...
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