Parker v. Lewis (In re Jones)
| Decision Date | 22 November 2011 |
| Docket Number | Related Case: 11-32030,Case No. 11-3127 |
| Parties | In re: Gabrielle Jones Debtor(s) Ericka Parker, Trustee Plaintiff(s) v. James Lewis Defendant(s) |
| Court | U.S. Bankruptcy Court — Northern District of Ohio |
This cause comes before the Court on the Motion of the Plaintiff/Trustee, Ericka S. Parker, for Summary Judgment. (Doc. No. 9). Said motion is brought on the Trustee's complaint to avoid, as a preferential transfer, a prepetition payment made by the Debtor to the Defendant. (Doc. No. 1). Against the Trustee's Motion for Summary Judgment, the Defendant filed a Response, objecting to the relief sought by the Trustee. (Doc. No. 10). In support of their respective positions, each of the Parties submitted written arguments. The Court has now had the opportunity to review the arguments submitted to the Court, as well as the supporting exhibits. Based upon this review, and for the following reasons, the Court finds that the Trustee's Motion for Summary Judgment should be Granted.
On April 12, 2011, the Debtor, Gabrielle M. Jones, filed a petition in this Court for relief under Chapter 7 of the United States Bankruptcy Code. The Plaintiff, Ericka Parker, was thereafter appointed trustee of the Debtor's bankruptcy estate. The Defendant, James J. Lewis, is the father of the Debtor.
At the time she filed for bankruptcy relief, the Debtor was the owner of a 2002 "Pontiac Grand Am." The vehicle's certificate of title shows that the vehicle is owned solely by the Debtor, that the vehicle was transferred to the Debtor in March of 2011 and that the purchase price for the vehicle was $5,602.35. The vehicle's certificate of title does not denote the existence of any lien.
To secure the necessary funds to purchase the Grand Am, the Debtor obtained a loan in the amount of $6,000.00 from the Defendant. In turn, the Defendant obtained the funds lent to the Debtor by taking a cash advance on a credit card. As evidence of their transaction, the Debtor executed two agreements: (1) a loan agreement, setting forth that the Defendant would be repaid over a 12-month term; and (2) a security agreement, dated February 26, 2011, granting to the Defendant a lien against the Debtor's Grand Am.
On March 20, 2011, the Debtor wrote a check to the Defendant for the sum of $3,000.00. The Defendant negotiated this check and then used the proceeds to partially repay the cash advance he had taken against his credit card. Citing to 11 U.S.C. § 547, the Trustee now seeks recover, as a preferential transfer, the $3,000.00 payment made by the Debtor to the Defendant.
Before this Court is the Trustee's Complaint to avoid, as a preferential transfer, the prepetition payment made by the Debtor to the Defendant. A matter such as this to determine, avoid, or recover a preferential transfer is deemed to be core proceedings pursuant to 28 U.S.C. § 157(b)(2)(F). Accordingly, as a core proceeding, this Court is conferred with jurisdiction to enter final orders and judgments in this matter. 28 U.S.C. § 157(b)(1).
Procedurally, the determination of the Trustee's action to avoid the prepetition transfer made by the Debtor to the Defendant is before this Court on the Trustee's Motion for Summary Judgment. The standard for summary judgment is set forth in Rule 56(a) of the Federal Rules of Civil Procedure, as made applicable to this Court by Bankruptcy Rule 7056. Under Rule 56(a), it is provided that the "court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." With respect to this standard, the movant must demonstrate all the elements of his cause of action. R.E. Cruise Inc. v. Bruggeman, 508 F.2d 415,416 (6th Cir. 1975). In making this determination, the Court is directed to view all the facts in a light most favorable to the party opposing the motion. Matsushita v. Zenith Radio Corp., 475 U.S. 574, 586-88, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986).
A prime policy goal of the Bankruptcy Code is to effectuate an equitable distribution of a debtor's nonexempt assets among similarly situated creditors. In re Shelton Harrison Chevrolet, Inc., 202 F.3d 834, 837 (6th Cir. 2000). Creditors who improve their position in the time period immediately preceding the commencement of a debtor's bankruptcy case potentially frustrate this goal. To address this situation, the Bankruptcy Code empowers a bankruptcy trustee to avoid certain types of prepetition transfers made of a debtor's interest in property when the transfer occurs within 90 days of the commencement of the case (or within one year if the transferee qualifies as an"insider") and when the transfer has the effect of preferring one creditor over a debtor's other creditors. 11 U.S.C. § 547.
In order for a transfer to qualify as preferential, subjecting the transfer to avoidance within the meaning of the Bankruptcy Code, the transfer must satisfy the statutory elements contained in § 547. These elements, five in number, are set forth in paragraphs (1) through (5) of § 547(b), with this provision providing:
The trustee bears the burden of proving, by at least a preponderance of the evidence, the existence of each of these elements. In re Southern Air Transport, Inc., 511 F.3d 526, 534 (6th Cir. 2007). Thereafter, even if this evidentiary burden is sustained, recovery may still be denied to the trustee if the transferee can establish the existence of any one of the affirmative defenses set forth in § 547(c).
Against her action for the recovery of a preference, the Defendant acknowledged the existence of the first four elements set forth in § 547(b), controverting only the last element of a preferential transfer as set forth in paragraph (5): Whether the transfer enabled him to receive more than he would have received in a hypothetical Chapter 7 case had the transfer not occurred. In addition, the Defendant contends that, even if a preference exists for purposes of § 547(b), the Trustee may not avoid the transfer based upon what is referred to as the "ordinary course of business" defense set forth in § 547(c)(2). Each of these positions will now be addressed in order.
11 U.S.C. § 547(b)(5)
This fifth element of § 547(b) implements the central concept of a preferential transfer - an improvement by the creditor of its position vis-a-vis the estate as a result of the transfer. See In re Auto Specialties Mfg. Co., 153 B.R. 510, 519 (Bankr. W.D.Mich. 1993). To this end, § 547(b)(5) requires that a prepetition transfer only needs to be returned to the estate if the transfer enabled the creditor to receive value in excess of a distribution in a hypothetical Chapter 7 case. In re Chattanooga Wholesale Antiques, Inc., 930 F.2d 458, 465 (6th Cir. 1991). This element is one of common sense, arising from the notion that a creditor should not need to return to the estate a prepetition transfer if that creditor would have ultimately received a transfer of equal value had it waited for the liquidation and distribution of estate assets. Smith v. Creative Fin. Mgmt., Inc., (In re Virginia-Carolina Fin. Corp.), 954 F.2d 193, 198-99 (4th Cir. 1992).
It is the Defendant's position that the Trustee has not met her burden for purposes of § 547(b)(5) because he holds the status of a secured creditor in the Debtor's bankruptcy case. This status, according to the Defendant, means that the $3,000.00 payment made to him by the Debtor in the month immediately preceding her bankruptcy did not enable him to receive more than he would have if there were to be a distribution of estate assets. (Doc. No. 10, at pg. 1). The legal basis for this position is derived from the manner in which assets of a debtor's bankruptcy estate are distributed to creditors.
Assets of a debtor's bankruptcy estate are distributed to creditors according to the order of priority established by the Bankruptcy Code. Braunstein v. McCabe, 571 F.3d 108, 118 (1st Cir. 2009). Under its priority scheme, secured creditors are placed at the top, with the Bankruptcy Code recognizing a secured creditor's right to receive consideration equal to the value of its collateral or the right to recover its collateral. See 11 U.S.C. § 506; § 725. See also Hartford Underwriters Ins. Co. v. Union Planters Bank, N.A., 530 U.S. 1, 5, 120 S.Ct. 1942, 1946, 147 L.Ed.2d 1 (2000) (); United States v. Darnell (In re Darnell), 834 F.2d 1263, 1265 (6th Cir. 1987) (). This feature of bankruptcy law means that, as put forth by the Defendant, any prepetition transfer made to a secured claimant will ordinarily only provide such a creditor with consideration to which it was otherwise entitled to receive, thus negating the preferential aspect of the transfer for purposes of § 547(b)(5). In re Southern Air Transport, Inc., 511 F.3d 526, 534 (6th Cir....
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