Mashburn v. Gentry (In re Gentry)

• Docket Number: 20-13708-SAH,Adv. Pro. 21-01017-SAH
• Decision Date: 21 January 2022
• Parties: In re: KRYSTA NICOLE GENTRY, Debtor. v. KRYSTA NICOLE GENTRY, WILLIAM T. HOLLIS, PAMELA SUE HOLLIS, and DKG INVESTMENTS, LLC, Defendants. JOHN D. MASHBURN, U.S. Bankruptcy Trustee of the Bankruptcy Estate of Krysta Nicole Gentry, Plaintiff,
• Court: U.S. Bankruptcy Court — Western District of Oklahoma

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In re: KRYSTA NICOLE GENTRY, Debtor.

JOHN D. MASHBURN, U.S. Bankruptcy Trustee of the Bankruptcy Estate of Krysta Nicole Gentry, Plaintiff,
v.
KRYSTA NICOLE GENTRY, WILLIAM T. HOLLIS, PAMELA SUE HOLLIS, and DKG INVESTMENTS, LLC, Defendants.

No. 20-13708-SAH

Adv. Pro. No. 21-01017-SAH

United States Bankruptcy Court, W.D. Oklahoma

January 21, 2022

Chapter 7

FINDINGS OF FACT AND CONCLUSIONS OF LAW

Sarah A. Hall, United States Bankruptcy Judge

On October 25, 2021, the following matters came on for trial in the above-captioned adversary proceeding:

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1. Complaint to Deny Discharge of Debtor, to Avoid Fraudulent or Preferential Transfers and for Turnover of Property and/or Funds [Doc. 1] (the "Complaint"), filed on February 5, 2021, by plaintiff John D. Mashburn, U.S. Bankruptcy Trustee ("Trustee") of the Bankruptcy Estate of Krysta Nicole Gentry ("Debtor")

2. Defendants' Answer to Complaint to Deny Discharge of Debtor, to Avoid Fraudulent or Preferential Transfers and for Turnover of Property and/or Funds [Doc. 13] (the "Answer"), filed on March 8, 2021, by defendants Debtor, William T. Hollis ("Father") and Pamela Sue Hollis ("Mother," collectively with Father "Parents"), and DKG Investments, LLC ("DKG"); and

3. Final Pretrial Order [Doc. 30], entered on October 14 2021

Trustee appeared in person and represented himself; and Debtor appeared in person and was represented by Gary D. Hammond. Attorney Hammond also represented Parents and DKG.

JURISDICTION

The Court has jurisdiction to hear the trial of this matter pursuant to 28 U.S.C. § 1334(b), and venue is proper pursuant to 28 U.S.C. § 1409. Reference to the Court of this matter is proper pursuant to 28 U.S.C. § 157(a), and this is a core proceeding as contemplated by 28 U.S.C. § 157(b)(2)(E), (H) and (J). Additionally, the parties have consented to this Court's entry of final orders pursuant to Federal Rules of Bankruptcy Procedure 7008 and 7012.

BACKGROUND

"Whether for carpentry or estate planning, it is usually a good idea to use the right tool for the job. Unfortunately, when it comes to estate planning and asset transfer, people are often ill-informed about the tools available to them and the perils of choosing the wrong one. If a parent wants to gift an asset to a child only upon the parent's death or incapacity, state law provides tools to accomplish that end. Unfortunately, use of the wrong tool could unwittingly result in a present transfer and the unintended loss of the asset." Soule v. Gragg (In re Harrison),

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503 B.R. 835, 838-39 (Bankr. N.D. Okla. 2013).

In this case, Parents deeded their homestead to their daughters, Debtor and Sister (defined below), for no consideration in 2003 in an effort to avoid probate in the event of their death. Thereafter, Parents continued to live in the homestead through the date of trial. Due to family conflict and a desire to remove Sister from the title, Debtor and Sister deeded the property back to Parents in early 2020. Parents then immediately deeded the property to DKG, an entity solely owned by Debtor. When Trustee discovered the 2020 transfers which Debtor failed to disclose in her original Schedules and Statement of Financial Affairs, they garnered his attention as a possible fraudulent transfer. Coupled with the suspicious transfers, Debtor's Schedules and Statement of Financial Affairs contained other material errors and omissions. Nevertheless, Debtor testified at her meeting of creditors that (i) she read and signed the Schedules and Statement of Financial Affairs and (ii) the same were true and correct. Against these facts, Trustee saw red and commenced this adversary proceeding to (i) avoid the 2020 transfers as fraudulent transfers under 11 U.S.C. §§ 544, 548, and 550; (ii) for turnover under 11 U.S.C. § 542; and (iii) to deny Debtor her discharge under 11 U.S.C. § 727(a)(2) and (4).

FINDINGS OF FACT

Parties

1. Debtor^[1] is the debtor in the above-captioned chapter 7 bankruptcy case (the "Bankruptcy Case"). Stipulation F. 2.

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2. Trustee is the bankruptcy trustee for Debtor's chapter 7 bankruptcy estate in the Bankruptcy Case. Stipulation F.1.

3. Parents are the father and mother of Debtor and are insiders of Debtor. Stipulation F.3.

4. Lyndsay D. Cargill f/k/a Lyndsay D. Hollis ("Sister") is the sister of Debtor. Stipulation F.4.

5. DKG is an Oklahoma limited liability company formed by Debtor on January 21, 2020. Stipulation F.5.

6. Debtor is the sole member and owner of DKG, and DKG has no business, liabilities, or assets other than its ownership interest in the Subject Property (defined below). Stipulation F.6.

Subject Property

7. On September 1, 1999, Parents purchased the following real property:

Lot One (1) in Block Five (5), PRESTON HILLS SECTION 2, an Addition to Oklahoma City, Oklahoma County, Oklahoma, according to the recorded plat thereof.

Street address: 12840 Park Hill Rd, Oklahoma City, OK 73142

(the "Subject Property"). Stipulation F.10.

8. Parents have continuously lived in the Subject Property as their home since they purchased it in 1999. Father Testimony, Transcript, p. 54.

9. At the time Parents purchased the Subject Property, Debtor and Sister lived with Parents as both were still in high school. Debtor moved out of the Subject Property within a year and resided at the Subject Property one other time after she had her son and then only for one year. Sister moved out of the Subject Property when she graduated from high school

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and never lived there again. Father Testimony, Transcript, pp. 55-56; Debtor Testimony, Transcript, pp. 89-90.

2003 Parents to Sisters Deed

10. On May 1, 2003, Parents recorded a quitclaim deed of the Subject Property (the "2003 Parents to Sisters Deed") transferring title of the Subject Property to Debtor and Sister. Stipulation F.11.^[2]

11. The 2003 Parents to Sisters Deed was an ill-advised effort to avoid probate when Parents pass away. Father prepared the 2003 Parents to Sisters Deed as an estate planning device and not as a gift. Father Testimony, Transcript, p. 55.

12. In executing the 2003 Parents to Sisters Deed, Parents had no intent to gift the Subject Property to Sister and Debtor.^[3] Father Testimony, Transcript, p. 55.

13. Debtor was aware of the 2003 Parents to Sister Deed and understood it was for estate planning purposes and was not a gift of the Subject Property to her and Sister. Debtor Testimony, Transcript, p. 89.

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14. Parents sought bankruptcy protection in 2005 and neither scheduled the Subject Property as real property they owned nor claimed the Subject Property as their exempt homestead. Trustee Ex. 19.

Parents' Decline and Need for Debtor's Assistance

15. Parents, not Debtor, primarily made any necessary repairs to the Subject Property from 1999 to 2018. Beginning in 2018, Debtor began providing financial support^[4] to her parents following her Father's job loss. Debtor also assisted Parents in making repairs. Father Testimony, Transcript, pp. 57-60.

16. Parents made the mortgage payments on the Subject Property until they ceased making payments due to a dispute with their mortgage lender. The mortgage was subsequently released in 2017 as a result of litigation over its continued validity. Debtor Ex. 1, p. D9; Father Testimony, Transcript, pp. 65-66.

17. Debtor did not pay real estate taxes or insurance on the Subject Property. Father Testimony, Transcript, pp. 58-60.

18. Debtor took deductions on her federal income tax return in 2018, 2019, and 2020, which were prepared by an accountant with Liberty Tax Service. The "rental real estate, royalties, partnerships, S corporations, trusts, etc." deductions were taken because her name was on the Subject Property and were an effort to recoup some of the financial assistance she provided to Parents. Debtor Testimony, Transcript, pp. 95-96.

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19. In late 2019, Parents and Debtor engaged a realtor to find a smaller house for parents. Notwithstanding making two offers, Parents have not bought a smaller house. Jason Shirazi Testimony, Transcript, pp. 74-76.

20. In 2020, Debtor's Father approached her about additional financial support leading Debtor to discover how precarious her Parents' financial condition had become. She learned Parents had been unable to pay their real estate taxes on the Subject Property for years and were in danger of losing their home. Debtor Testimony, Transcript, pp. 94-96.

21. Debtor found a solution for paying the delinquent real estate taxes on the Subject Property. Her mother-in-law Deborah Strawn McIntyre ("McIntyre") agreed to advance funds to pay the taxes. Debtor Testimony, Transcript, pp. 97-98.

22. However, Debtor was unwilling to provide additional financial support, or allow McIntyre to pay the delinquent real estate taxes, if Sister remained as an owner of the Subject Property.^[5] Debtor Testimony, Transcript, pp. 97-98.

2020 Sisters to Parents Deed

23. Accordingly, on January 22, 2020, Debtor and Sister executed a Joint Tenancy Quitclaim Deed of the Subject Property, which was recorded in Oklahoma County on January 23, 2020, at Book RE14244, Page 1654 (the "2020 Sisters to Parents Deed"), and transferred title of the Subject Property to Parents. Stipulation F.12; Trustee Ex. 2.

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24. Debtor received no consideration in exchange for the 2020 Sisters to Parents Deed. Stipulation F.13.

25. The purpose of the 2020 Sisters to Parents Deed was twofold: remove Sister from ownership of the Subject Property in the event the Subject Property could be sold as it was Parents' sole asset while also ensuring Debtor and McIntyre were repaid for the expenses Debtor advanced and the delinquent real estate taxes paid by McIntrye on behalf of Parents. Father Testimony, Transcript, pp. 62-63.

2020 Parents to DKG Deed

26. On January 24, 2020, Parents executed a Quitclaim Deed of the...