Paris v. Walker (In re Walker)

• Decision Date: 03 April 2017
• Docket Number: Case Nos: 1:13–bk–13184–SDR,1:15–ap–1051–SDR,Adversary Proceeding Case Nos: 1:15–ap–1078–SDR
• Citation: 566 B.R. 503
• Parties: IN RE: Elbert Donald WALKER, Rhonda Pitts Walker, Debtors James R. Paris, Trustee Plaintiff v. Cindy Walker, Individually, and Cindy Walker, Trustee of the Cindy Michelle Walker Revocable Trust, and Cindy Michelle Walker, Trustee Defendants
• Court: U.S. Bankruptcy Court — Eastern District of Tennessee

566 B.R. 503

IN RE: Elbert Donald WALKER, Rhonda Pitts Walker, Debtors

James R. Paris, Trustee Plaintiff
v.
Cindy Walker, Individually, and Cindy Walker, Trustee of the Cindy Michelle Walker Revocable Trust, and Cindy Michelle Walker, Trustee Defendants

Case Nos: 1:13–bk–13184–SDR
Adversary Proceeding Case Nos: 1:15–ap–1078–SDR
1:15–ap–1051–SDR

United States Bankruptcy Court, E.D. Tennessee, Southern Division.

Signed April 3, 2017

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Counsel for Plaintiff: Richard P. Jahn, Jr., Nancy A. Cogar

Counsel for Defendants: Tamra B. Ferguson, R. Dee Hobbs, Gregory Evan Van Houten

Memorandum Opinion on Trustee's and Defendants' Motions for Summary Judgment

Shelley D. Rucker, UNITED STATES BANKRUPTCY JUDGE

I. Background Facts and Procedural History

A. The Pleadings

The Chapter 7 Trustee, James R. Paris, ("Plaintiff" or "Trustee"), filed a complaint in this adversary proceeding on June 17, 2015.¹ [Doc. No. 1]. An amended complaint

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was filed on October 27, 2015. [Doc. No. 31]. The amended complaint seeks substantive consolidation pursuant to 11 U.S.C. § 105 of certain real estate assets held by Cindy Walker, individually, and Cindy Walker, Trustee of the Cindy Michelle Walker Revocable Living Trust, (together, "Defendants") with those of her parents, the debtors, Elbert and Rhonda Walker ("Debtors").² [Doc. No. 31, at 13]. The amended complaint also seeks as alternative relief the avoidance of certain transfers of real estate between the Debtors and the Defendants, the establishment of a resulting trust, and/or the payment by the Defendants of the balance owed for the purchase of each house. [Doc. No. 31, at 15–17]. The Defendants filed an answer on November 30, 2015. [Doc. No. 38].

The Trustee has filed a motion for summary judgment pursuant to Fed. R. Civ. P. 56, as incorporated into bankruptcy adversary proceedings by Fed. R. Bankr. P. 7056. [Doc. No. 107]. The Defendants oppose the motion for summary judgment. [Doc. No. 115]. The Defendants have also filed a motion for partial summary judgment [Doc. No. 111], which the Trustee opposes. [Doc. No. 112].³ The parties have prepared extensive briefs accompanied by affidavits and thousands of pages of exhibits and deposition transcripts.

B. The Trustee's Claims and Theories of Recovery

At issue in this case are sixteen houses that were acquired by or transferred to Cindy Walker or her trust. The Trustee alleges that the transfers were made directly from one or both Debtors or were purchased by Defendants with money obtained from one or both Debtors. These

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houses may be sorted into three groups based on the Trustee's theory of recovery. First, there are five houses transferred to Cindy Walker by Rhonda Walker in 2007 ("2007 Transfers").⁴ Second, there are five additional houses transferred to Cindy Walker by Rhonda Walker in 2008 ("2008 Transfers").⁵ Finally, there are the remaining properties, which were acquired by or transferred to Cindy Walker or her trust within two years of the Debtors' bankruptcy filing on June 28, 2013 ("Two–Year Transfers").⁶

The Trustee asks the court to grant summary judgment based on three theories.⁷ First, he seeks that fifteen of the sixteen houses involved in this suit be substantively consolidated with the Debtors' estates. [Doc. No. 107–2, at 2]. Alternatively, the Trustee seeks that the same fifteen house transfers be avoided and brought into the Debtors' estates as fraudulent transfers. [Id. at 3]. As a third theory of relief, if the court were to find that the Defendants' ownership of the houses should not be substantively consolidated or is not the result of fraudulent transfers, the Trustee asks the court to order that unpaid purchase obligations for the fifteen houses and applicable net post-petition rents owed by Defendants be reduced to money judgments. [Id. ]. Finally, the Trustee seeks a judgment that the note signed by Cindy Walker on August 3, 2009, as to the sixteenth house, 2210 Red Tail Lane, be declared valid, due and owing, and enforceable; and that a judgment be entered for the balance due on the note as of August 31, 2016 in the amount of $286,682. [Doc. No. 107–2, at 13–14].

In support of his motion, the Trustee has provided an affidavit as custodian of the Debtors' pre-petition books and records along with copies of relevant personal and business bank account records, accompanied by affidavits from the respective banks authenticating the bank account records; financial records; tax returns; and other records, including client trust accountings; property records; and notes he has obtained through his investigations of the Debtors' assets and liabilities. [Doc. No. 108]. Attached to his statement of undisputed facts, the Trustee has provided the deposition testimony of Cindy Walker, Don Walker, Rhonda Walker, John Ramsey, and Janice Long, a longtime employee of the Walker's businesses, along with their deposition exhibits. [Doc. No. 110]. Finally, the Trustee has also provided an affidavit and report prepared by his expert, Mr. Spence Shumway, CPA, in which Mr. Shumway has analyzed the books and records of the Debtors, who also acted as the property managers for Cindy Walker. [Doc. No. 109]. Mr. Shumway has calculated the amounts that he contends the Defendants owe to one or both of the Debtors for the purchase of the sixteen properties. The Trustee contends that if the transfers

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are not avoided, then he is at least entitled to a judgment for the amount owed by the Defendants to the Debtors under their theory of the case.

C. The Defendants' Defenses and Theories for Dismissal

The Defendants also seek a partial summary judgment on all counts in the amended complaint except a judgment for some funds paid toward two properties in May of 2013. [Doc. No. 111–1, at 2]. Specifically, the Defendants contend that all but five of the fraudulent transfer claims are barred by the applicable statute of limitations. [Doc. No. 111–1, at 2]. Second, the Defendants contend that the court, as a matter of law, does not have equitable authority under 11 U.S.C. § 105 to use substantive consolidation or some other equitable theory, such as a resulting trust, to recover assets whose recovery is otherwise barred by the applicable statutes of limitation. [Id. ]. Third, as to any fraudulent transfer claim, the Defendants contend that the Trustee has failed to show that the transferors i.e., the Debtors, were insolvent at the time the transfers were made. [Id. ]. The Defendants contend that the Trustee failed to prove that required element of his cause of action and that they are consequently entitled to summary judgment on any claim which requires such a showing. Those causes of action would include all of the constructive fraudulent transfer claims under federal bankruptcy or state law. Fourth, the Defendants contend that the undisputed facts do not support a finding that Cindy Walker should "be stripped of her property." [Id. at 3]. Finally, the Defendants contend that the Trustee is not entitled to summary judgment because he has failed to support his claim that a specific amount is owed with admissible evidence and that his motion for summary judgment relies only on allegations. [Id. ].

In support of their motion for partial summary judgment, the Defendants have attached, inter alia , Mr. Shumway's deposition and his initial and final report, a calculation of the 2007 note balance using a 3% interest rate, an expert rebuttal report from Mr. Jack London, CPA, and the same depositions of Cindy Walker, Don Walker, and Rhonda Walker included with the Trustee's motion. [Doc. No. 111].

II. Jurisdiction

The court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. §§ 1334 and 157(b)(2)(H) as well as the general order of reference entered in this district. The parties have agreed that this is a matter related to the bankruptcy proceeding and have consented to this court entering a final order in this matter. [Doc. No. 56].

III. Standard for Summary Judgment

Federal Rule of Bankruptcy Procedure 7056 makes Federal Rule of Civil Procedure 56 applicable to bankruptcy adversary proceedings. See Fed. R. Bankr. P. 7056. Summary judgment is appropriate if there is no genuine issue as to any material fact, and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a). The burden is on the moving party to show conclusively that no genuine issue of material fact exists, and the court must view the facts and all inferences to be drawn therefrom in the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp. , 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) ; Morris v. Crete Carrier Corp. , 105 F.3d 279, 280–81 (6th Cir. 1997) ; 60 Ivy Street Corp. v. Alexander , 822 F.2d 1432, 1435 (6th Cir. 1987) ; Kava v. Peters ,...