Milligan v. Valdes (In re Kinney)

• Decision Date: 05 February 2021
• Docket Number: Adv. Proc. No. 3:20-ap-3032-SHB,Case No. 3:20-bk-30540-SHB
• Parties: In re MARGARET ELIZABETH KINNEY Debtor F. SCOTT MILLIGAN, TRUSTEE Plaintiff v. SARAH E. VALDES Defendant
• Court: U.S. Bankruptcy Court — Eastern District of Tennessee

In re MARGARET ELIZABETH KINNEY Debtor

F. SCOTT MILLIGAN, TRUSTEE Plaintiff v. SARAH E. VALDES Defendant

Case No. 3:20-bk-30540-SHB

Adv. Proc. No. 3:20-ap-3032-SHB

UNITED STATES BANKRUPTCY COURT FOR THE EASTERN DISTRICT OF TENNESSEE

February 5, 2021

Chapter 7

MEMORANDUM ON MOTIONS FOR SUMMARY JUDGMENT

APPEARANCES:

F. SCOTT MILLIGAN, ESQ.

P.O. Box 12266

Knoxville, Tennessee 37912

Attorney for Plaintiff

SARAH E. VALDES

2444 Allegheny Loop Road

Maryville, Tennessee 37803

Pro Se Defendant

SUZANNE H. BAUKNIGHT UNITED STATES BANKRUPTCY JUDGE

Before the Court are the following dispositive motions with filings in support: (1) Plaintiff's Second Motion for Summary Judgment ("Second Motion for Summary Judgment") [Docs. 54, 55, 56] and Defendant's Cross Motion for Summary Judgment ("Cross Motion") (which is included in Defendant's Response in Opposition to Plaintiff's Motion for Summary Judgment and Cross Motion for Summary Judgment [Doc. 66]) ("Response and Cross Motion") [Docs. 66, 67, 68, 69]. Defendant's responses to the Second Motion for Summary Judgment are contained in the following filings: Brief in Support of Defendant's Motion to Deny Plaintiff's Amended Complaint and to Dismiss Plaintiff's Original Complaint for Failure to State a Claim ("Defendant's Brief in Support of Doc. 64"),¹ the Response and Cross Motion, and Defendants' [sic] Response to Plaintiffs' [sic] Statement of Undisputed Material Facts in Support of Motion for Summary Judgment ("Defendant's Response to Plaintiff's Statement") [Docs. 65, 66, 67.] Plaintiff responded to Defendant's Cross Motion and replied in support of the Second Motion for Summary Judgment in documents entitled Plaintiff's Response to Defendant's Statement of Undisputed Material Facts ("Plaintiff's Response to Defendant's Statement") and Plaintiff's Reply to Defendant's Response to Second Motion for Summary Judgment and Plaintiff's Response to Defendant's Motion for Summary Judgment ("Plaintiff's Reply and Response"). [Docs. 78, 79.] This matter is fully ripe for adjudication.

I. PROCEDURAL POSTURE

This adversary proceeding is related not only to the Chapter 7 bankruptcy case of Margaret E. Kinney, Case No. 3:20-bk-30540-SHB ("Bankruptcy Case"), but also to the adversary proceeding brought by Debtor and William Kinney (who are Defendant's parents)against Anderson Lumber Company, Inc. ("Anderson"), Blue Tarp Financial, Inc. ("Blue Tarp"), and Kizer & Black, Attorneys, PLLC ("K&B"), Adv. Proc. No. 3:20-ap-3028 ("AP 3028"), and to the adversary proceeding brought by Debtor and Mr. Kinney against F. Scott Milligan, who is the Chapter 7 Trustee in the underlying Bankruptcy Case and Plaintiff herein, Adv. Proc. No. 3:20-ap-3056 ("AP 3056"). On January 13 and 15, 2021, respectively, the Court dismissed both AP 3028 and AP 3056 with prejudice, and such decisions are now final, the time for appeal having expired under Federal Rule of Bankruptcy Procedure 8002(a)(1).² [Order, AP 3028, ECF No. 131; Memorandum and Order Dismissing Adversary Complaint ("Mem. & Order in AP 3056"), AP 3056, ECF No. 10.]

In this case, on October 22, 2020,³ the Court entered a judgment in favor of Plaintiff on his claim to recover Debtor's partial interest in real property located at 2444 (also known as 2442) Allegheny Loop Road, Maryville, Blount County, Tennessee 37803 (Parcel ID 124-73.03) (the "Property") for the benefit of the bankruptcy estate. [Doc. 30.] Debtor's partial interest in the Property (along with the partial interest of Mr. Kinney) had been conveyed to Defendant by a Quit Claim Deed dated March 19, 2016, but because the Quit Claim Deed was not recorded prepetition, Plaintiff was granted summary judgment under 11 U.S.C. § 544(a). [Docs. 20, 30, 57.] Also, the Court granted summary judgment on Plaintiff's claim under 11 U.S.C. § 549 to set aside Defendant's postpetition transfer of the Property by recordation of the Quit Claim Deed on April 17, 2020. [Id.] The Court ruled as a matter of law that the avoided transfer of theinterest in the Property was recovered solely for the benefit of the bankruptcy estate to be administered by Plaintiff under 11 U.S.C. § 550(a)(1). [Id.]

With leave of Court, Plaintiff amended the Complaint on December 11, 2020 ("Amended Complaint") [Docs. 42, 44.] The Amended Complaint asks the Court for authorization under 11 U.S.C. § 363(h) to sell the Property, now co-owned by the bankruptcy estate and Defendant. Plaintiff includes in the Amended Complaint his agreement with Anderson, which Plaintiff asserts holds a valid and perfected judgment lien, for Plaintiff to sell the Property with proceeds to be set aside for costs and administrative expenses of the bankruptcy estate and for a distribution to unsecured creditors.⁴

The Court denied numerous motions of Defendant that sought to set aside the Court's authorization for Plaintiff to amend the Complaint and the granting of summary judgment to Plaintiff on his claims under 11 U.S.C. §§ 544, 549, and 550. [Docs. 32, 41, 48, 49, 50, 51, 60, 62, 64, 74.] As a result, Defendant's response to the Amended Complaint is the Cross Motion. [Doc. 66.]

This Memorandum Opinion, thus, will address Plaintiff's Second Motion for Summary Judgment and Defendant's Cross Motion. As set forth below, because the Court finds that the undisputed facts establish that Plaintiff is entitled to sell the Property free and clear of Defendant's interest pursuant to 11 U.S.C. § 363(h), the Court will grant Plaintiff's Second Motion for Summary Judgment and deny Defendant's Cross Motion.

II. BACKGROUND

The lengthy litigation history between Debtor and Mr. Kinney, on the one hand, and Anderson, Blue Tarp, and K&B, on the other, provides the necessary backdrop to the instant suit because Defendant raises in this case the same arguments that her parents raised in AP 3028 and AP 3056. Accordingly, the Court incorporates herein (for purposes of background only) the section of its Memorandum Opinion on Defendants' Motions to Dismiss ("Mem. Op. in AP 3028") entitled Litigation History Between the Parties. [Mem. Op. in AP 3028 at pp. 5-11, ECF No. 130.]

The Court also reiterates the Undisputed Facts set out in the Memorandum on Motion for Partial Summary Judgment entered October 1, 2020 [Doc. 20 at pp. 3-4 (footnote omitted)]:

The debtor, Margaret Elizabeth Kinney, filed a pro se Chapter 7 case on February 24, 2020, and F. Scott Milligan was appointed Chapter 7 Trustee and currently serves in that capacity. When Debtor filed her bankruptcy case, she indicated in Schedule A/B that she owned real property at 2442 Allegheny Loop Road, Maryville, Tennessee, 37803⁵ (the "Property"). Debtor valued the Property at $50,000.00 and described the nature of her ownership in the Property as a tenancy by the entireties. At the request of Plaintiff, Debtor provided a copy of a quit claim deed to support her contention that she owned an interest in the Property with her husband, William F. Kinney, as tenants by the entireties.

On April 7, 2020, Debtor advised Plaintiff that Debtor was mistaken about her ownership interest in the Property and that she had transferred her interest in the Property to Defendant. On or about April 16, 2020, Debtor amended her Schedule A/B to indicate that she did not own the Property. After April 17, 2020, Debtor provided Plaintiff with a copy of a Quit Claim Deed dated March 19, 2016, conveying the Property from William F. & Margaret E. Kinney to Defendant (the "Quit Claim Deed"). The Quit Claim Deed was recorded with the Blount County Register of Deeds on April 17, 2020.

Anderson recorded a judgment against Debtor and Mr. Kinney on September 5, 2019, thereby creating a judgment lien on the Property. [Docs. 55 at ¶ 6; 67 at ¶ 6.]⁶ Anderson's judgment lien totals $175,465.59 plus post-judgment interest. [Id.] The tax appraisal value of the Property as of June 26, 2020, was $90,100.00, less than the amount of Anderson's judgment lien.⁷ [Docs. 55 at ¶ 10; 67 at ¶ 10.] Based on Plaintiff's experience as a Chapter 7 trustee, he "cannot foresee that a third party would be interested in purchasing a one-half undivided interest as tenant in common with [Defendant] in a property where [Defendant], her children, and her parents reside." [Docs. 55 at ¶ 15; 67 at ¶ 15 (deemed an admission pursuant to E.D. Tenn. LBR 7056-1(b)).] Also, according to the undisputed record, if the Property is not sold by Plaintiff, Anderson intends to pursue judicial foreclosure under state law. [Docs. 55 at ¶ 21; 67 at ¶ 21 (deemed an admission pursuant to E.D. Tenn. LBR 7056-1(b)).] Anderson, however, has agreed to allow a portion of the proceeds from a sale of the Property by Plaintiff to be allocated for payment to unsecured creditors (i.e., $7,500.00) and to pay administrative expenses of the bankruptcy estate (the "Carve-Out Agreement"). [Docs. 55 at ¶ 18; 67 at ¶ 18 (deemed an admission pursuant to E.D. Tenn. LBR 7056-1(b)).] The Carve-Out Agreement will create a benefit for the bankruptcy estate if the Court authorizes a sale by Plaintiff pursuant to 11 U.S.C.§ 363(h). [Docs. 55 at ¶ 16; 67 at ¶ 16 (deemed an admission pursuant to E.D. Tenn. LBR 7056-1(b)).]

III. THE PARTIES' POSITIONS

Plaintiff argues that 11 U.S.C. § 363(h) authorizes the sale of the Property, which is jointly owned by Defendant and the bankruptcy estate as tenants in common, because (1) a partition in kind is impracticable, (2) a sale of the estate's undivided interest would realize significantly less than a sale free and clear of Defendant's interest, (3) the benefit to the estate of a § 363(h) sale outweighs the detriment to Defendant, and (4) the Property is not used in the production, transportation, or distribution for sale of electric energy or of natural or synthetic gas for heat, light, or power.⁸ [Doc. 56 at pp. 6-7.] Plaintiff argues that Anderson's judgment lien is valid such that even if physical partition of the Property was practicable, partitioning the Property would remain impracticable because the...