Miller v. Peterson (In re Peterson)
| Decision Date | 28 December 2022 |
| Docket Number | 19-20027,Adversary 20-02009 |
| Parties | In re: BILLY DEE PETERSON Debtor v. BILLY DEE PETERSON; JULIE BARNES; DIAMOND LAND TRUST; DIAMOND LAND TRUST - 19; BILLY DEE PETERSON, as the purported trustee of the Diamond Land Trust - 19; EARL LAWRENCE; EARL LAWRENCE, as the purported trustee of the Diamond Land Trust - 19; CITI TRUSTEE SERVICES, LLC, as the purported trustee of the Diamond Land Trust - 19; MOUNTAIN MEADOW LOG HOMES LLC; MW DESIGN AND CONSTRUCTION, LLC; COWBOY STATE PROPERTIES, LLC; WILLOW SPRINGS, LLC; and DOES 1-10, Defendants. DAVID MILLER, Trustee of the Chapter 7 Bankruptcy Estate of Billy Dee Peterson Plaintiff, |
| Court | U.S. Bankruptcy Court — District of Wyoming |
In re: BILLY DEE PETERSON Debtor
DAVID MILLER, Trustee of the Chapter 7 Bankruptcy Estate of Billy Dee Peterson Plaintiff,
v.
BILLY DEE PETERSON; JULIE BARNES; DIAMOND LAND TRUST; DIAMOND LAND TRUST - 19; BILLY DEE PETERSON, as the purported trustee of the Diamond Land Trust - 19; EARL LAWRENCE; EARL LAWRENCE, as the purported trustee of the Diamond Land Trust - 19; CITI TRUSTEE SERVICES, LLC, as the purported trustee of the Diamond Land Trust - 19; MOUNTAIN MEADOW LOG HOMES LLC; MW DESIGN AND CONSTRUCTION, LLC; COWBOY STATE PROPERTIES, LLC; WILLOW SPRINGS, LLC; and DOES 1-10, Defendants.
No. 19-20027
Adversary No. 20-02009
United States Bankruptcy Court, D. Wyoming
December 28, 2022
Chapter 7
MEMORANDUM OPINION
Honorable Cathleen D. Parker, United States Bankruptcy Court Judge
At its core, this proceeding presents the intersection of state law and federal bankruptcy law, requiring the court to determine whether Montana real estate, allegedly held in a Montana land trust, and construction equipment are property of Debtor's bankruptcy estate under Section 541(a)(1) of the Bankruptcy Code[1] and therefore subject to turnover for the Chapter 7 trustee to administer. The issues entail examination of Montana trust law and Wyoming alter ego law to determine whether Debtor Billy Dee Peterson had an interest in the subject property on the date he filed bankruptcy. If so, it is estate property and the Trustee may recover the property or its value for distribution to unsecured creditors.[2] As with most cases like this one, the facts are complicated and
contested and require the court to evaluate the witnesses' credibility. Following four days of trial, the court issues this final order on the "estate property" claims asserted in this adversary proceeding.
I. Procedural History
Debtor filed this Chapter 7 bankruptcy on January 23, 2019. On August 30, 2019, the duly-appointed Chapter 7 trustee David Miller commenced an adversary proceeding against Debtor, his construction companies Mountain Meadow Log Homes, LLC (MMLH) and MW Design and Construction, LLC (MW Design), purported land trusts named Diamond Land Trust and Diamond Land Trust-19 (DLT-19) and several purported trustees thereof, and other parties. The Trustee's Complaint sought, in part, declaratory relief and recovery of a tract of real estate in Roberts, Montana with a home Debtor built thereon, certain items of construction equipment, and real estate in Etna, Wyoming as property of the bankruptcy estate; the balance of the claims asserted a general objection to Debtor's discharge on various grounds under Section 727.[3]
On or about March 28, 2020, the Trustee bifurcated the "estate property" claims from the Section 727 claims, filing the current adversary proceeding to first hear and decide the overarching issue of whether the Roberts and Etna properties and construction equipment are property of the bankruptcy estate subject to the Trustee's administration. As relevant to this opinion, the Trustee seeks a determination that: 1) MMLH and MW Design are Debtor's alter egos and have no separate legal existence; 2) the named trusts-Diamond Land Trust and/or DLT-19-are not legally created trusts and have no interest in the Roberts property, or alternatively, the trust(s) are Debtor's alter ego(s); and 3) on the Petition Date, Debtor had an interest in the Roberts property, the Etna property, and construction equipment making them property of his bankruptcy estate. To recover the property, the Trustee seeks: 1) imposition of a resulting trust or constructive trust in the Roberts and Etna properties in the Trustee's favor; 2) a determination Debtor is the sole owner of the Roberts property and quieting title in Debtor pursuant to state law; 3) entry of a judgment vesting title to the Roberts property in the Trustee pursuant to Fed.R.Bankr.P. 7070 incorporating Fed.R.Civ.P. 70; 4) avoidance of Debtor's transfer of his interest in the Roberts property as an actual or constructively fraudulent transfer under Section 544(b) and the Montana Uniform Fraudulent Transfer Act and preserving and recovering the avoided transfer for the estate's benefit under Sections 550 and 551; and/or 5) an unjust enrichment finding for Debtor's contributions to the Etna property.[4]
Following more than a year of discovery, Mr. Peterson, individually and as the purported director of DLT-19, and his construction entities MMLH and MW Design (collectively the Peterson
Defendants), moved for summary judgment and/or to dismiss the Trustee's claims.[5] Defendant Julie Barnes, individually and as the purported trustee of DLT-19, and her entities Cowboy State Properties, LLC and Willow Springs, LLC (collectively the Barnes Defendants) joined, in part, in the summary judgment motion.[6] The court issued its Order on Summary Judgment denying the motions to dismiss and for summary judgment, concluding the Trustee pled sufficient plausible facts for each claim and there were material facts in dispute with respect to all claims.[7]
The case proceeded to trial on March 15, 2022. At the close of the Trustee's case-in-chief, the Peterson and Barnes Defendants moved to dismiss. The court treated the motion as one for judgment on partial findings under Fed.R.Civ.P. 52(c), made applicable to this proceeding by Fed.R.Bankr.P. 7052.[8] For the reasons stated on the record, the court granted and denied the motion in part. The court dismissed defendant Earl Lawrence, individually and as purported trustee of DLT-19. The court granted the Barnes Defendants judgment on all claims related to the Etna property, including the unjust enrichment claim. The court deferred ruling on the alter ego, construction equipment claims, the DLT-19 and Roberts property claims, and on the imposition of resulting or constructive trusts, and the Trustee's claims to quiet and vest title. To summarize, the following parties remained defendants at the close of trial: Peterson, individually and as purported trustee of DLT-19; Diamond Land Trust; DLT-19; MMLH; MW Design; Citi Trustee Services, LLC as purported trustee of DLT-19; and Julie Barnes, individually and as purported trustee of DLT-19.
II. Findings of Fact[9]
A. The Parties
1. Debtor Peterson and Peterson entities MMLH and MW Design
On the Petition Date, Debtor lived in Etna, Wyoming. He is a long-time self-employed general building contractor who conducts his residential construction business as a sole proprietor or through limited liability companies, MMLH and MW Design, of which he is the sole member and
owner. Debtor organized both entities under Wyoming law and has operated MMLH since 1995[10]and MW Design since 2016.[11]
On May 28, 2007, the state of Wyoming administratively dissolved MMLH and showed it as inactive on Wyoming's corporation records.[12] Debtor claimed MMLH was "idle" between 2016-2018 and generated no income during this period. Shortly before filing bankruptcy, Debtor "created another iteration of MMLH" on January 4, 2019, claiming he intended to resume building under this entity.[13] While MMLH was idle between 2016-2018, Debtor was apparently operating MW Design during this period, developing the Etna property with Ms. Barnes. MW Design maintained checking and savings accounts with First Interstate Bank.[14] Debtor and Ms. Barnes, for an unknown period, were signatories on the checking account. Debtor provided no evidence of personal banking accounts-only business accounts.
Prior to filing bankruptcy, Debtor contemplated forming a construction financing business called RM Funding, but it never came to fruition and there was no evidence RM Funding held any assets or funds or made any loans. As explained later, Debtor used this fictitious entity to create a fabricated lien against the Roberts property.
2. Heidi Christensen (a non-party)
Ms. Christensen is not a party to this proceeding. She is Debtor's former girlfriend. They were engaged in the spring of 2010 and purchased a 14-acre tract of land in Roberts, Montana (Roberts Property) with $49,000 seller financing.[15] They each funded one-half of the $22,000 cash down payment. At Debtor's direction, the Roberts Property was titled solely in Christensen's name to protect the property from creditors.
In or around February 2013, after Christensen's and Debtor's relationship ended, they entered into a Contract for Deed Agreement (2013 Agreement) under which "Diamond Land Trust" would purchase Ms. Christensen's interest in the Roberts Property.[16] Debtor executed the 2013 Agreement as "Buyer Trustee," despite acknowledging no such trust existed.
Creating additional confusion, Ms. Christensen signed another agreement over a year later, on September 29, 2014 (2014 Agreement), to sell the Roberts Property to "Diamond Land Trust-19"
(DLT-19) the day before she conveyed the property.[17] Debtor personally paid Ms. Christensen and on September 30, 2014, she conveyed the Roberts Property at Debtor's request to DLT-19.[18] Ms. Barnes signed the 2014 Agreement as Trustee of DLT-19, despite all parties acknowledging the first document attempting to create DLT-19 was the same day as the conveyance, a day after the 2014 Agreement.[19]
3. Diamond Land Trust and DLT-19
Per the 2013 Agreement, Debtor purportedly purchased Christensen's interest in the Roberts Property on behalf of "Diamond Land Trust" as "Buyer Trustee." However, no "Diamond Land Trust" existed in 2013, or ever existed. When asked at trial about the difference between Diamond Land Trust and DLT-19, Debtor conceded there never was a Diamond Land Trust.
DLT-19 is the purported land trust Debtor sought to create to hold title to the Roberts Property. Several different versions of the purported DLT-19 trust document were offered into evidence at trial: Exhibits 13, 21, 24[20], and Debtor's claimed version, Exhibit S-BP, a combination of Exhibits 13 and 24. The earliest version...
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