Prillaman v. Monroe (In re Grobner), Case No. 17-90819
| Decision Date | 08 May 2019 |
| Docket Number | Adv. No. 18-09025,Case No. 17-90819 |
| Parties | In Re DONALD R. GROBNER and SHARON R. GROBNER, Debtors. ROGER L. PRILLAMAN, not individually, but as Chapter 7 Trustee, Plaintiff, v. MICHELLE R. MONROE, Defendant. |
| Court | U.S. Bankruptcy Court — Central District of Illinois |
Before the Court is a Motion to Dismiss filed by the Defendant, asserting that the complaint fails to state a claim upon which relief may be granted. For the reasons set forth herein and not for the reasons set forth in the Defendant's motion, the complaint will be dismissed and the Plaintiff will be given leave to file an amended complaint.
Donald R. Grobner and Sharon R. Grobner ("Debtors") filed their voluntary petition under Chapter 7 on July 26, 2017. Roger L. Prillaman was appointed and continues to serve as the Chapter 7 trustee ("Trustee") in the case.
On October 30, 2018, the Trustee filed his adversary complaint against the Defendant, Michelle R. Monroe, who is identified as the daughter of the Debtors. The Trustee alleges that the Debtors have resided continuously at 1186 Ambes, Bourbonnais, Illinois, ("Ambes home") since 2005. He further claims that, on December 13, 2012, the Debtors executed a quitclaim deed transferring the Ambes home to the Defendant and that the deed, on its face, shows that consideration for the transfer was less than $100. At the time, he claims, the Ambes home was worth more than $376,000. He also alleged that on October 24, 2013, the Defendant executed a quitclaim deed transferring a life estate in the Ambes home back to the Debtors. The Trustee described a failed business transaction in which the Debtors were involved shortly before the transfer of the Ambes home to the Defendant. And he specifically noted an obligation of the Debtors to the United States Small Business Administration ("SBA") incurred in 2010 in the amount of $368,000 and upon which, according to the Debtorsschedules, over $418,000 is currently due.
The Trustee captioned his complaint as having been brought under the Illinois Uniform Fraudulent Transfer Act ("IUFTA"), and he made repeated references to Illinois law throughout the complaint. 740 ILCS 160/5(a)(1), (2). He also, however, made reference to the Federal Debt Collections Practices Act ("FDCPA") and identified the SBA as the "triggering creditor" or "golden creditor" making that law applicable to these proceedings. 28 U.S.C. §3001. His prayer for relief asked that the transfer of the Ambes home be avoided and that the property be turned over for sale or, alternatively, that judgment be entered against the Defendant for the value of the Ambes home.
The Defendant filed a motion to dismiss the complaint, asserting that it fails to state a claim upon which relief may be granted. Fed. R. Civ. P. 12(b)(6); Fed. R. Bankr. P. 7012. The motion is cryptic—a scant three paragraphs—and simply says that there is case law that holds that the FDCPA may not be used by trustees in bankruptcy cases but includes no analysis of the issue. The Trustee responded citing contrary case law, and the Defendant filed a brief reply. The matter is ready for decision.
This Court has jurisdiction over the issues before it pursuant to 28 U.S.C. §1334. All bankruptcy cases and proceedings filed in the Central District of Illinois have been referred to the bankruptcy judges. CDIL-Bankr. LR 4.1; see 28 U.S.C. §157(a). Actions to determine, avoid, or recover fraudulent conveyances are core proceedings. See 28 U.S.C. §157(b)(2)(H). This matter may be constitutionallydecided by a bankruptcy judge. See Stern v. Marshall, 564 U.S. 462, 499 (2011). Bankruptcy courts in this Circuit have repeatedly held that there is no constitutional impediment to the entry of final judgments in fraudulent transfer cases. See Reid v. Wolf (In re Wolf), 595 B.R. 735, 751 (Bankr. N.D. Ill. 2018) (collecting cases). And, in any event, the order to be entered here is not one that is final and appealable. In re Vlasek, 325 F.3d 955, 960 (7th Cir. 2003).
Bankruptcy Rule 7008 requires that adversary complaints "contain a statement that the pleader does or does not consent to entry of final orders or judgment by the bankruptcy court." Fed. R. Bankr P. 7008. Here, the Trustee says that he "agrees to have this Court hear the case." Although the Court believes that the Trustee was attempting to comply with the requirements of Bankruptcy Rule 7008 with the inclusion of that language, he should, in the future, more precisely adhere to the mandated expression of consent, or lack thereof, to the entry of final orders and judgments.
The duties of a Chapter 7 trustee include investigating the financial affairs of debtors and collecting and reducing to money the property of the estate. 11 U.S.C. §704(a)(1), (4). Property of the estate includes property that is recoverable by a trustee under §550 of the Code. 11 U.S.C. §541(a)(3). Property recoverable under §550 includes fraudulent transfers avoided by the trustee under §544 or §548. 11 U.S.C. §550(a).
Under §548, a trustee may generally avoid a transfer of a debtor's interest in property made within two years of filing and with the actual intent to defraudcreditors or for which inadequate consideration was received. 11 U.S.C. §548(a)(1). Under §544(b), a trustee may step into the shoes of any of a debtor's unsecured creditors and use any available "applicable law" to avoid fraudulent transfers of a debtor's property. 11 U.S.C. §544(b)(1). In many of the cases filed before this Court, the trustees find Illinois law to be applicable and use the provisions of the IUFTA to avoid prepetition fraudulent transfers made by debtors. The IUFTA generally provides for the avoidance and recovery of transfers made "with actual intent to hinder, delay, or defraud any creditor of the debtor[,]" or made "without receiving a reasonably equivalent value in exchange for the transfer[.]" 740 ILCS 160/5. With some limited exceptions, an action under the IUFTA must be brought within four years of the transfer. 740 ILCS 160/10.
The Trustee also relied on the FDCPA in his complaint. The FDCPA provides the exclusive procedures and remedies for the collection of debts owed to the United States and its various agencies and departments. 28 U.S.C. §3001. The FDCPA contains specific provisions for the avoidance of fraudulent transfers, including transfers made with actual intent to defraud or made for inadequate consideration. See, e.g., 28 U.S.C. §§3304, 3305, 3306(a). Generally, actions under the FDCPA must be brought within six years after the transfer that is sought to be avoided. 28 U.S.C. §3306(b).
The Trustee's complaint lays out a set of plausible facts sufficient to support an action to avoid and recover a fraudulent transfer. The Debtors are alleged to have transferred their home worth more than $376,000 to their daughter for less than $100 consideration. And notwithstanding the transfer, they have remained in possession of the home for a number of years. Those bare facts alone state acause of action. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007) ().
The Defendant's motion to dismiss does not allege a lack of sufficient facts to state a plausible claim. Rather, the Defendant says that the FDCPA upon which the Trustee relied, in part, in bringing the action is not "applicable law" that the Trustee may use to recover a fraudulent transfer and, according to the Defendant, the complaint must therefore be dismissed.
Before reaching the issue of the applicability of the FDCPA, a brief comment about the applicability of the IUFTA is warranted. The Trustee says that his complaint is brought principally under the IUFTA. Implicit in the Defendant's arguments, however, is the assumption that the Trustee referred to the FDCPA in order to benefit from the extended statue of limitations provided therein. 28 U.S.C. §3306(b). Presumably, the Defendant believes that the Trustee is relying on the FDCPA because the shorter statue of limitations found in the IUFTA has run. But a statue of limitations defense must expressly be raised as an affirmative defense, and, regardless of what the Defendant might have intended, no affirmative defense regarding the IUFTA was raised in the motion to dismiss. Fed. R. Civ. P. 8(c); Fed. R. Bankr. P. 7008. The Defendant says absolutely nothing whatsoever about the IUFTA in her motion to dismiss or in her reply brief, and, accordingly, the complaint will not be dismissed on the grounds that the Trustee cannot state a cause of action under the IUFTA because the statue of limitations provided for therein has run. This Court cannot simply presume that an affirmative defense never actually raised was intended to be asserted. This Court cannot reach theissue based on the pending motion to dismiss.
In arguing that the FDCPA cannot be used by the Trustee to recover a fraudulent transfer, the Defendant relies solely on MC Asset Recovery LLC v. Commerzbank A.G. (In re Mirant Corp.), 675 F.3d 530 (5th Cir. 2012). In Mirant, the Fifth Circuit held that a special litigation entity created pursuant to a Chapter 11 plan could not use the FDCPA to avoid an alleged fraudulent transfer. Although the Court found that the entity had standing to pursue fraudulent transfers, it held that the FDCPA was not "applicable law" under §544(b). Id. at 534-35. In making its decision, the Fifth Circuit noted that the FDCPA specifically provides that it does not "supersede or modify" the operation of a number of federal statutes including Title 11—the Bankruptcy Code. Id. at 535; 28 U.S.C. §3003(c).
Although admitting that legislative history is not dispositive of the issue, the Fifth Circuit relied on such history to support its decision in Mirant. The Court cited comments that the language regarding the...
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