Rainsdon v. Garcia (In re Garcia)

• Decision Date: 03 October 2011
• Docket Number: Bankruptcy No. 10–40937–JDP.,Adversary No. 11–8016–JDP.
• Citation: 465 B.R. 181
• Parties: In re Oscar E. GARCIA and Hodelia Garcia, Debtors.Gary L. Rainsdon, Trustee, Plaintiff, v. Angel Garcia and Edith Garcia, Defendants.
• Court: U.S. Bankruptcy Court — District of Idaho

465 B.R. 181

In re Oscar E. GARCIA and Hodelia Garcia, Debtors.Gary L. Rainsdon, Trustee, Plaintiff,

v.Angel Garcia and Edith Garcia, Defendants.

Bankruptcy No. 10–40937–JDP.

Adversary No. 11–8016–JDP.

United States Bankruptcy Court, D. Idaho.

Oct. 3, 2011.

William Hollifield, Hollifield Law Office, Twin Falls, ID, for Plaintiff.

Kent Jensen, Burley, ID, for Defendants.

MEMORANDUM OF DECISION

JIM D. PAPPAS, Bankruptcy Judge.

Introduction

On May 12, 2011, a Motion for Summary Judgment was filed in this adversary proceeding by Defendants Angel and Edith Garcia (“Defendants”). Dkt. No. 10. Plaintiff Gary L. Rainsdon (“Plaintiff”), the trustee in the chapter 7 ¹ bankruptcy case of Oscar and Hodelia Garcia (“Debtors”), opposed the motion. Dkt. No. 18. The Court heard oral argument on the motion on July 26, 2011, after which the Court permitted the parties to submit additional briefing. Dkt. No. 20. Thereafter, the motion was taken under advisement. The Court has considered the submissions of the parties, the arguments of counsel, as well as the applicable law. This Memorandum disposes of the motion. Fed. R. Bankr.P.7052; 9014.

Facts

The material facts are not in dispute.

Debtors formerly owned a house located at 114 Oregon Street, in Gooding, Idaho (“the Property”). Debtors lived at the Property, paid the mortgage payments to Zion's Bank, paid the real property taxes due, and maintained an insurance policy on the Property.

Debtor Oscar Garcia and Defendant Angel Garcia are brothers. On June 20, 1998, Debtors entered into a Rent to Own Agreement (“RTO Agreement”) concerning the Property with Defendants. Dkt. No. 19, Ex. A. The RTO Agreement required Defendants to: 1) “make the $315 [mortgage] payment for [Debtors] to Zions Bank” each month; 2) pay the real property taxes on the Property as they became due; 3) pay the $25 monthly premium for the insurance policy covering the Property; and 4) pay all utilities in Defendants' names. The RTO Agreement further provided:

When [Defendants] have paid off the mortgage at Zions National Bank, [Debtors] agree to provide [Defendants] with a Warranty Deed and clear title to this property with no debt owing.

Id.

The RTO Agreement referred to the Property solely by its street address; no legal description was included. The parties' signatures on the RTO Agreement were not acknowledged or notarized. Id. Although executed by the parties on June 20, 1998, the RTO Agreement was not recorded in the Gooding County real property records until April 13, 2000. Id.

Defendants took possession of the Property. On October 18, 2008, over ten years after executing the RTO Agreement, a second agreement was entered into by the parties, apparently in response to Defendants' desire to allow a third party to move onto the Property prior to completion of the mortgage payments and transfer of title from Debtors to Defendants. Dkt. No. 19, Ex. B. This second agreement, entitled simply “Contract,” recites that Debtors are the owners of the Property, and Defendants are the purchasers. Id. It reiterates Defendants' obligation to pay taxes and certain utilities, and notes that Defendants agree to pay $312 per month, and any late fees or other expenses, until a current balance of $14,402.64 is paid in full. Id. The Contract further requires Defendants to keep the Property clean and in good repair, and to maintain the grounds. Id. Finally, the Contract expressly prohibits Defendants from leasing, renting or allowing occupancy of the Property by another party until payment of the monetary obligations has been made in full. Id.

Like the RTO Agreement, the Contract contains only a street address for the Property. While the signatures of both Defendants on the Contract are acknowledged, only Oscar Garcia signed the Contract on behalf of Debtors; Hodelia's signature does not appear on the document. The Contract was not recorded. Id.

Some time in October 2009,² Defendants made the last payment on the mortgage to Zions Bank. Belatedly true to their word, on April 6, 2010, Debtors executed and gave Defendants a warranty deed, transferring title to the Property to Defendants. Dkt. No. 19, Ex. C. The warranty deed contains a legal description of the Property, Debtors' signatures as the grantors are properly acknowledged, and the deed was recorded. Id.

On May 27, 2010, Debtors filed a chapter 7 bankruptcy petition. Case No. 10–40937–JDP Dkt. No. 1. Plaintiff was appointed to serve as the trustee in the case, and on February 17, 2011, he commenced this adversary proceeding against Defendants seeking to avoid the transfer of the Property from Debtors to Defendants. Dkt. No. 1. Defendants filed an answer to the adversary Complaint, Dkt. No. 7, and later, the instant summary judgment motion, Dkt. No. 10.

Summary Judgment Standard

This Court recently summarized the standard for resolving summary judgment motions:

In adversary proceedings before the bankruptcy court, the familiar summary judgment standard established in Federal Rule of Civil Procedure 56 applies. See Fed. R. Bankr.P. 7056; North Slope Borough v. Rogstad (In re Rogstad), 126 F.3d 1224,1227 (9th Cir.1997). Summary judgment is proper when “the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(c). An issue is “genuine” only if there is a sufficient evidentiary basis on which a reasonable fact finder could find for the nonmoving party, and a dispute is “material” only if it could affect the outcome of the suit under the governing law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The party moving for summary judgment has the burden of showing the absence of a genuine issue of material fact. Id. at 256–57, 106 S.Ct. 2505. The court must view all the evidence in the light most favorable to the nonmoving party. County of Tuolumne v. Sonora Cmty. Hosp., 236 F.3d 1148, 1154 (9th Cir.2001).

In response to a properly submitted summary judgment motion, the burden shifts to the opposing party to set forth specific facts showing that there is a genuine issue for trial. Henderson v. City of Simi Valley, 305 F.3d 1052, 1055–56 (9th Cir.2002). The nonmoving party “may not rely on denials in the pleadings but must produce specific evidence, through affidavits or admissible discovery material, to show that the dispute exists.” Bhan v. NME Hosps., Inc., 929 F.2d 1404,1409 (9th Cir.1991).

A court “generally cannot grant summary judgment based on its assessment of the credibility of the evidence presented.” Agosto v. INS, 436 U.S. 748, 756, 98 S.Ct. 2081, 56 L.Ed.2d 677 (1978). “[A]t the summary judgment stage the judge's function is not himself to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial.” Anderson, 477 U.S. at 249, 106 S.Ct. 2505.

Gugino v. Wells Fargo Bank Northwest, N.A. (In re Lifestyle Home Furnishing, LLC), 10.1 IBCR 23, 23 (Bankr. D. Idaho 2010) ( quoting Barboza v. New Form, Inc. (In re Barboza), 545 F.3d 702, 707 (9th Cir.2008)).³

Analysis and Disposition

In his amended complaint, Plaintiff alleges three distinct claims for relief. Defendants argue none of those claims have merit. As requested in Defendants' motion, the Court considers whether summary judgment is appropriate as to each claim in turn.

1. Avoidance of the Transfer under § 544(a).

Plaintiff first seeks to avoid the transfer of the deed and title to the Property from Debtors to Defendants under a Bankruptcy Code provision known affectionately to bankruptcy trustees as the “strong arm clause.” Section 544(a) provides, in relevant part, that (a) The trustee shall have, as of the commencement of the case, and without regard to any knowledge of the trustee or of any creditor, the rights and powers of, or may avoid any transfer of property of the debtor or any obligation incurred by the debtor that is voidable by—

* * *

(3) a bona fide purchaser of real property, other than fixtures, from the debtor, against whom applicable law permits such transfer to be perfected, that obtains the status of a bona fide purchaser and has perfected such transfer at the time of the commencement of the case, whether or not such a purchaser exists.

11 U.S.C. § 544(a)(3).

This statute grants a bankruptcy trustee the power to avoid any transfer that could be defeated by a hypothetical bona fide purchaser (“BFP”) for value under state law. Chase Manhattan Bank, USA, N.A. v. Taxel (In re Deuel), 594 F.3d 1073, 1076 (9th Cir.2010). State law governs the rights of Plaintiff, as a hypothetical BFP, as against Defendants. Wonder–Bowl Props. v. Kim (In re Kim), 161 B.R. 831, 834 (9th Cir. BAP 1993); Rainsdon v. Mullen (In re Mullen), 402 B.R. 353, 357 (Bankr.D.Idaho 2008) (quoting Michael v. Martinson (In re Michael), 49 F.3d 499, 501 (9th Cir.1995)). Key to the instant case, however, is that under the plain wording of the statute, the trustee's hypothetical BFP status is measured as of the commencement of the case.

Plaintiff apparently contends that because the RTO Agreement and the Contract failed to comply with Idaho's statute of frauds for real property agreements, both contracts would be unenforceable as against a hypothetical BFP. Ray v. Frasure, 146 Idaho 625, 200 P.3d 1174,1177 (2009) (citing Hoffman v. S V Co., Inc.), 102 Idaho 187, 628 P.2d 218, 221 (1981); Gugino v. Kastera, LLC (In re Ricks), 433 B.R. 806, 818 (Bankr.D.Idaho 2010). However, when viewed as of the petition date, the agreement between Debtors and Defendants memorialized in the RTO Agreement and Contract was a completed transaction.

When Debtors filed their petition, § 541(a) operated to create an estate which included all of their interests in property. However, as the transaction between Debtors and Defendants had been completed, and the deed had been delivered and...