Prime Lending II, LLC v. Buerge (In re Buerge)
| Decision Date | 02 April 2014 |
| Docket Number | BAP No. KS-13-024,BAP No. KS-12-078,BAP No. KS-13-023,BAP No. KS-12-074,BAP No. KS-13-025,BAP No. KS-12-077,Bankr. No. 11-20325,BAP No. KS-13-022 |
| Parties | IN RE AARON GRANT BUERGE, doing business as Trolley's, LLC, doing business as Trolley's Overland Park, LLC, doing business as Trolley's Real Estate Holdings, Debtor. PRIME LENDING II, LLC, Appellant, v. AARON GRANT BUERGE, LIBERTY BANK, FINANCIAL ENTERPRISES, INC., BUERGE BANCSHARES, INC., and ALDEN BUERGE, Appellees. IN RE AARON GRANT BUERGE, doing business as Trolley's, LLC, doing business as Trolley's Overland Park, LLC, doing business as Trolley's Real Estate Holdings, Debtor. ERIC C. RAJALA, Chapter 7 Trustee, Appellant, v. AARON GRANT BUERGE, LIBERTY BANK, FINANCIAL ENTERPRISES, INC., BUERGE BANCSHARES, INC., and ALDEN BUERGE, Appellees. IN RE AARON GRANT BUERGE, doing business as Trolley's, LLC, doing business as Trolley's Overland Park, LLC, doing business as Trolley's Real Estate Holdings, Debtor. DAVID L. JOHNSON, MONTE G. MCDOWELL, JOSE L. EVANS, MELVIN L. DUNSWORTH, Jr., STEVEN B. CHASE, BRADLEY L. NICHOLSON, and KEVAN D. ACORD, Appellants, v. AARON GRANT BUERGE, LIBERTY BANK, FINANCIAL ENTERPRISES, INC., BUERGE BANCSHARES, INC., and ALDEN BUERGE, Appellees. IN RE AARON GRANT BUERGE, doing business as Trolley's, LLC, doing business as Trolley's Overland Park, LLC, doing business as Trolley's Real Estate Holdings, Debtor. PRIME LENDING II, LLC, Appellant, v. AARON GRANT BUERGE, ALDEN BUERGE, BUERGE BANCSHARES, INC., and FINANCIAL ENTERPRISES, INC., Appellees. IN RE AARON GRANT BUERGE, doing business as Trolley's, LLC, doing business as Trolley's Overland Park, LLC, doing business as Trolley's Real Estate Holdings, Debtor. PRIME LENDING II, LLC, Appellant, v. AARON GRANT BUERGE, ALDEN BUERGE, BUERGE BANCSHARES, INC., and FINANCIAL ENTERPRISES, INC, Appellees. IN RE AARON GRANT BUERGE, doing business as Trolley's, LLC, doing business as Trolley's Overland Park, LLC, doing business as Trolley's Real Estate Holdings, Debtor. ERIC C. RAJALA, Chapter 7 Trustee, Appellant, v. AARON GRANT BUERGE, ALDEN BUERGE, BUERGE BANCSHARES, INC., and FINANCIAL ENTERPRISES, INC., Appellees. IN RE AARON GRANT BUERGE, doing business as Trolley's, LLC, doing business as Trolley's Overland Park, LLC, doing business as Trolley's Real Estate Holdings, Debtor. ERIC C. RAJALA, Chapter 7 Trustee, Appellant, v. AARON GRANT BUERGE, ALDEN BUERGE, BUERGE BANCSHARES, INC., and FINANCIAL ENTERPRISES, INC., Appellees. |
| Court | U.S. Bankruptcy Appellate Panel, Tenth Circuit |
NOT FOR PUBLICATION
OPINION*Appeal from the United States Bankruptcy Court
for the District of Kansas
Before THURMAN, Chief Judge, CORNISH, and ROMERO, Bankruptcy Judges.
Among many duties, a Chapter 7 trustee's first-listed duty under 11 U.S.C. § 704(a)(1) is to "collect and reduce to money the property of the estate for which [he] serves, and close such estate as expeditiously as is compatible with the bestinterests of parties in interest."1 Once property is surrendered to the trustee, he must determine how to administer estate property - whether to sell the property pursuant to § 363 or § 522(f), abandon it pursuant to § 554, or otherwise dispose of it pursuant to § 724 or § 725. A party in interest, however, may compel a trustee to abandon the property if it is burdensome or of inconsequential value and benefit to the estate.2
In this case, Eric C. Rajala, the Chapter 7 Trustee assigned to the bankruptcy case (the "Trustee"), sought to sell shares of stock in two closely-held bank holding companies to Prime Lending II, LLC ("Prime"), the debtor's largest unsecured creditor, while the debtor sought to compel the Trustee to abandon them to him. At issue is whether the Bankruptcy Court erred in denying the proposed sale to Prime and compelling the Trustee to abandon the stock. The Bankruptcy Court was faced with a multitude of very difficult issues. While we agree with many of that Court's determinations, we simply disagree with others as will be discussed hereafter. After careful review of the record and arguments in this matter, we AFFIRM in part and REVERSE in part.
Aaron Buerge (the "Debtor") and his family are bankers. The Buerge family has been in the banking business since 1965, when the Debtor's grandfather purchased a bank in Butler, Missouri.3 The family eventually acquired two banking entities, First National Bank of Clinton, Missouri and FirstState Bank of Joplin, Missouri. Each entity has several branch locations in Missouri, and each entity represents the principal asset of a bank holding company. Buerge Bancshares, Inc. ("BBI") holds all shares of First State Bank of Joplin, while Financial Enterprises, Inc. ("FEI") holds all of the shares of First National Bank of Clinton. The Debtor's father, Alden Buerge ("Alden"), the Debtor's brother, and the Debtor own approximately ninety percent of BBI and FEI's shares, and non-family shareholders own the remaining shares.
From 2003 through 2007, the Debtor invested in a restaurant business, obtaining an ownership interest in Trolley's, LLC, Trolley's Overland Park, LLC, and Trolley's Real Estate Holdings, LLC (collectively "Trolley's").4 Columbian Bank and Trust Company financed Trolley's operations, and the Debtor personally guaranteed the loans, which totaled approximately $3.7 million and were secured by Trolley's real estate and assets. Columbian Bank failed in 2008, and although the Debtor made a bid for the loans, the FDIC sold the loans to Prime's predecessor, which immediately assigned the loans to Prime. Upon obtaining the loans, Prime declared the loans in default and filed suit in state court against Trolley's and their members, including the Debtor, on February 6, 2009. Trolley's filed for bankruptcy on May 11, 2009. That bankruptcy concluded with the liquidation of Trolley's assets after extensive litigation with Prime.
The Debtor filed for Chapter 7 relief on February 11, 2011. He received his discharge on October 5, 2011. Unsecured claims filed against the estate were approximately $3 million. Prime's claim of $2,545,668.66 represented eighty-five percent of the unsecured class.5
The Debtor's stock in BBI and FEI (collectively the "Stock") constituted his primary nonexempt asset. On the petition date, he owned 306.47 shares of BBI stock and 132.64225 shares of FEI stock, which represent approximately 11.5% ownership of each company. The Debtor's schedules valued the BBI shares at $1,102,930.30, and the FEI shares at $566,255.07.6
FEI was a C corporation and did not pay dividends.7 BBI is a Subchapter S corporation and generally pays quarterly distributions to cover the income tax associated with profit passed through to the shareholders.8 BBI has historically generated a profit, resulting in estimated quarterly state and federal taxes of about $34,385. If BBI does not distribute dividends to cover these tax liabilities, the bankruptcy estate does not have assets to pay the tax liability.
The Stock was subject to liens held by Alden and Liberty Bank in the total amount of $1.73 million as of April 2011.9 Alden holds a lien on 100 of the Debtor's BBI shares, as security for a loan he made to the Debtor to purchase those shares. Liberty Bank's claim arose from two loans it made to the Debtor that were cross-collateralized by the other 206.47 shares of the Debtor's BBIstock, as well as by all of his FEI stock.10 Quarterly debt service payments on the loans secured by the Stock total about $27,249. The Debtor reaffirmed these secured loans.11
The Stock is also subject to stock purchase agreements ("SPAs") that restrict the Debtor's ability to transfer the stock.12 Most significantly, any transfer that renders BBI or FEI ineligible for Subchapter S tax treatment is prohibited. Further, under the SPAs, BBI and FEI have an option to purchase their respective stock at book value.
On September 8, 2011, the Trustee moved to abandon the Stock (and to sell some other assets) to the Debtor in exchange for $10,000 and the Debtor's payment of the estate's 2010 priority tax claim (approximately $15,000).13 In that motion, the Trustee stated the Stock:
Prime objected to the proposed abandonment of the Stock, disagreeing with the Trustee's assessment and advising that it was "prepared to do the necessary discovery at no cost to the estate or Debtor" to complete its analysis as to the Stock's value, liens, and the tax consequences to determine whether to make an offer forthwith or withdraw its objection.15 Prime believed the Debtor's equity in the Stock was approximately $1.8 million after deducting the secured debt.16 The Debtor replied the purpose of Prime's discovery was delay and harassment, arguing the Stock's value had been an issue for the past three...
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