Moser v. Bank of Tyler (In re Loggins)

Decision Date21 April 2014
Docket NumberBankruptcy No. 11–60283.,Adversary No. 12–6012.
Citation513 B.R. 682
PartiesIn re Bobby G. LOGGINS, Debtor. Christopher Moser, Chapter 7 Trustee, Plaintiff v. Bank of Tyler, a division of Huntington State Bank, Defendant.
CourtU.S. Bankruptcy Court — Eastern District of Texas


Todd A. Hoodenpyle, Larry A. Levick, Singer & Levick, P.C., Addison, TX, for Plaintiff.

Aaron M. Kaufman, Cox Smith Matthews Incorporated, Dallas, TX, Scott C. Skelton, Zeleskey Law Firm, PLLC, Lufkin, TX, for Defendant.


BILL PARKER, Bankruptcy Judge.

ON THIS DATE the Court considered the Motion for Summary Judgment filed by Plaintiff, Christopher Moser, the duly-appointed Trustee of the Chapter 7 Bankruptcy Estate of Bobby G. Loggins (the Trustee), and the competing Motion for Summary Judgment filed by the Defendant, Bank of Tyler, a division of Huntington State Bank (the Bank), the responses in opposition thereto, and the corresponding replies. The complaint in this action alleges that the Chapter 7 bankruptcy estate is entitled to recover from the Bank the sum of approximately $2.1 million which the Trustee asserts was either a preferential transfer under 11 U.S.C. § 547 or a fraudulent transfer under 11 U.S.C. §§ 544 or 548. Based upon the Court's consideration of the competing Motions, the memoranda in support and opposition thereto, the proper summary judgment evidence tendered to the Court, and for the reasons stated in this Memorandum, the Court concludes that the Trustee's Motion for Summary Judgment should be granted as to the recovery of a preferential transfer 1 and that the Bank's Motion for Summary Judgment should be denied. This disposes of all issues currently before the Court.2

Factual and Procedural Background3

In the fall of 2010, the Debtor, Bobby G. Loggins (the “Debtor”), and his spouse, Linda E. Loggins, had incurred approximately $3.6 million in unsecured liabilities to the Defendant, Bank of Tyler,4 stemming from the execution of certain guaranty agreements by the Debtor in June 2008 and April 2009.5 The Debtor signed these agreements as an accommodation to the Bank in order to facilitate the making of a series of loans by the Bank to Loggins Culinary, LLC (“Culinary”) and Loggins Properties, LLC (“Properties”), respectively,each of which was owned by the Debtor's non-filing spouse, Linda Loggins.6 Though he acted as a guarantor of the companies' obligations to the Bank and had signatory privileges on the companies' accounts at the Bank, the Debtor had no personal bank account at the Bank.7

A portion of the indebtedness owed to the Bank by the Debtor arose as a result of the deposit of certain checks into the respective business checking accounts of Culinary and Properties at the Bank. Between August 11–13, 2010, nine separate checks totaling $2,107,658.64, some of which drawn upon the Debtor's personal bank account at Citizens State Bank and others from the Southside Bank account of Loggins Meat Co., Inc., were deposited into the Culinary and Properties bank accounts at the Bank.8 The deposits triggered provisional credits for the two companies, which were quickly utilized. 9 However, when presented for final settlement to the respective payor banks, all nine checks were returned for insufficient funds at the end of August 2010,10 resulting in account overdrafts in the two company accounts totaling $2,107,658.64, the full amount of the provisional credits utilized by the companies.11 Discussions immediately began between the Bank and the Debtor regarding the satisfaction of these deficiencies. After finally determining in September 2010 that payment on the overdrafted amounts was not imminent from any source,12 the Bank charged off and closed the two company accounts.13

Negotiations regarding the options by which to address this substantial deficiency continued by and among the parties. Meanwhile, the financial pressures imposed upon the Debtor and his family's business interests continued to increase. As an example, in late August 2010, Heritage Production Credit, PCA initiated litigation against the Debtor, his wife, and Loggins Meat Co., Inc., seeking to recover approximately $9.5 million.14 In early October, the Bank sought to intervene in that litigation to protect its collateral position as to certain assets of Culinary and Properties.15 In mid-October 2010, the Bank formally declared a default under the loan agreements with Culinary and Properties and notified the Debtor and other non-debtor guarantors of such defaults.16

In the face of those increasing financial pressures, the parties continued to negotiate in an effort to resolve the numerous problems caused by the dishonored checks. On November 3, 2010, the Debtor and his spouse proposed to the Bank a sale and leaseback of their real property “with the proceeds applied to the BOT debt,” so long as the Bank would be willing to reserve a “mutually agreeable” portion of the sales proceeds in order to fund the Lufkin plant operations of the two companies for a six-month period.17

Though the summary judgment record does not contain any detailed account of the negotiations, it does reflect that on December 1, 2010, a Memorandum of Understanding (the “MOU”) was prepared, under which it was proposed that Elvin “Buddy” Lowery, a director and majority shareholder of the Bank,18 would purchase from the Debtor and his spouse approximately 145 acres of rural real property in Smith County, Texas, for the appraised value of such property, less the satisfaction of any outstanding encumbrances.19 The real estate to be conveyed consisted of two tracts: (1) a 137.212–acre tract referred to as a “horse farm” or “horse ranch”; and (2) a 7.995–acre tract adjacent to and partially surrounded by the “horse farm.” 20 To be omitted from the scope of the sale was the adjacent 1.718–acre site upon which the Debtor's actual family residence was located.21 All net proceeds otherwise payable to the Debtor and his spouse arising from the sale of the property would be “earmarked” for payment to the Bank.22 The Debtor would receive a “right of first refusal” applicable to any attempt by Mr. Lowery to sell the subject properties for a three-year period.23 The Memorandum also referenced the Loggins' request that the Bank provide to Culinary and Properties a working capital loan of $425,000, over half of which would be immediately repaid upon receipt of an anticipated governmental grant of $250,000 from the City of Lufkin.24 None of the above-stated provisions of the MOU created binding legal obligations, but the parties expressly covenanted to keep the status of their negotiations confidential and to seek completion of binding agreements by December 10, 2010.25

In fulfillment of the intentions expressed in the Memorandum of Understanding, the parties executed a Real Estate Contract (the “Sales Contract”) with an effective date of December 31, 2010.26 The provisions of the Sales Contract tracked the language of the MOU as to the parties to the sales transaction, the asset identification, and the purchase price. Also consistent with the MOU was the following provision:

Earmarking: Of the Total Purchase Price [which was $2.2 million], $2,107.658.64 (sometimes referred to herein as the “Earmarked Payment”), is hereby earmarked for payment to the Bank of Tyler at Closing in accordance with the [Memorandum]. Seller and Buyer will jointly instruct the Closing Agent to (i) reflect this payment on the HUD–1 and (ii) pay the Earmarked Payment to the Bank of Tyler at Closing.27

In accordance with the Sales Contract, Lowery placed the sum of $2.2 million in escrow with the designated closing agent, Landmark Title, Inc.28 No formal escrow agreement was utilized.29 Upon receipt of all of the executed closing documents and with the written consent of the parties, 30 the sales transaction was closed on January 7, 2011, as outlined in a settlement statement prepared by Landmark Title.31 On that date, pursuant to the directives of the parties, Landmark tendered to the Bank the net sales proceeds in the amount of $2,103,917.62.32

None of the sales proceeds were paid to the Debtor or his spouse. However, the Debtor was granted certain concessions that maintained his uninterrupted possession of the ranch property. The right of first refusal contemplated by the MOU was granted to the Debtors by Lowery.33 In addition thereto, Lowery immediately leased all of the purchased property back to the Debtor and his spouse in exchange for the costs of taxes, insurance and the ongoing maintenance of the property.34 No monthly payment was required of the Debtor and his spouse and the lease term was for an unspecified period, subject to a 30–day termination notice.

Pursuant to the MOU, the Bank made a working capital loan in the amount of $425,000 to Properties and Culinary, which included the required prepayment provision upon the companies' receipt of the $250,000 local governmental grant. 35 The loan was guaranteed by the Debtor and his spouse and was funded by the Bank on the closing date of the sales transaction—January 7, 2011. 36

On March 30, 2011, less than 90 days after the sale of the real property closed, an involuntary petition for relief under Chapter 7 of the Bankruptcy Code was filed against the Debtor, Bobby Gene Loggins. 37 The Debtor contested the entry of an order for relief for a considerable period of time and progress toward a trial of the involuntary petition became protracted due to the pendency of a criminal investigation against the Debtor and the resulting invocation of the Debtor's Fifth Amendment rights.38 After various delays, on the eve of the trial of the involuntary petition, the Debtor conceded to the entry of an order for relief under Chapter 7 of the Bankruptcy Code on November 8, 2011.39 Christopher Moser was ultimately selected as the interim Chapter 7 trustee on November 16, 2011. The Trustee subsequently filed the complaint in...

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