Samson v. Western Capital Partners LLC (In re Blixseth)

• Decision Date: 01 June 2012
• Docket Number: Adv No. 10-00094,Case No. 09-60452-7
• Parties: In re EDRA D BLIXSETH, Debtor. RICHARD J. SAMSON, Plaintiff. v. WESTERN CAPITAL PARTNERS LLC, Defendant.
• Court: United States Bankruptcy Courts. Ninth Circuit. U.S. Bankruptcy Court — District of Montana

In re EDRA D BLIXSETH, Debtor.

RICHARD J. SAMSON, Plaintiff.

v.WESTERN CAPITAL PARTNERS LLC, Defendant.

Case No. 09-60452-7

Adv No. 10-00094

UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF MONTANA

Dated: June 1, 2012

MEMORANDUM of DECISION

At Butte in said District this 1st day of June, 2012.

Pending in this adversary proceeding are: (1) Defendant Western Capital Partners, LLC's ("Western Capital") Motion for Partial Summary Judgment against Counts I and II of Plaintiff Richard J. Samson's Amended Complaint (Docket No. 95), and the objection thereto filed by the Trustee/Plaintiff; and (2) Plaintiff Richard J. Samson's Motion for Summary Judgment (Docket. No. 96) on all counts of the complaint against Western Capital, and the objection thereto filed by Western Capital. The Court has reviewed both motions, objections, replies, statements of facts and issues, and applicable law.

JURISDICTION

The "jurisdiction of the bankruptcy courts, like that of other federal courts, is grounded in, and limited by, statute." Battleground Plaza, LLC v. Ray (In re Ray), 624 F.3d 1124, 1130 (9th Cir. 2010) (quoting Celotex Corp. v. Edwards, 514 U.S. 300, 307 (1995)). In general, a bankruptcy court's jurisdiction is prescribed by 28 U.S.C. § 1334(b). In addition to granting jurisdiction to bankruptcy courts over bankruptcy cases, the statute provides that "the district courts [and by reference pursuant to 28 U.S.C. § 157, the bankruptcy courts] shall have original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11."

This Court has jurisdiction in this adversary proceeding under 28 U.S.C. § 1334(b) as it arises in and relates to the above-captioned Chapter 7 case. The Trustee asserts this is a core proceeding in which the Court has the authority to enter a final decision. Western Capital counters that this is not a core proceeding and further argues it has not consented to entry of a final order or judgment by this Court and, based upon the United States Supreme Court's recent decision in Stern v. Marshall, 131 S. Ct. 2594, 2608, 2615, 2620 (2011), instead requests that this Court enter proposed findings of fact and conclusions of law.

An action by a bankruptcy trustee to avoid and recover a preference or a fraudulent conveyance is a "core proceeding." 28 U.S.C. § 157(b)(2)(F) and (H).¹ The foregoing applies to Counts I and III of the Trustee's Amended Complaint. Count V of the Trustee's Amended Complaint, seeking to disallow Western Capital claim, is also "core" under 28 U.S.C. §157(b)(2)(B). Count VI is likewise core under 28 U.S.C. § 157(b)(2)(B) because it necessarily implicates the process of allowance, or disallowance, of Western Capital's claim as a creditor in this case under § 502(d) of the Bankruptcy Code. As a core proceeding, Congress has instructed the bankruptcy court to "hear and determine ... and [to] enter appropriate orders and judgments [in the action] subject to [appellate] review under section 158 of [title 28]." 28 U.S.C. § 157(b)(1).

Under the facts and circumstances of this particular case, the Court agrees with the recent ruling of the Bankruptcy Court in Idaho:

Congress has decided that a bankruptcy court should hear and decide a trustee's fraudulent conveyance claims arising in a bankruptcy case, a task that is particularly well-suited to the bankruptcy court's expertise. While it may be interesting to ponder whether, some day, the Supreme Court could, perhaps, determine that bankruptcy courts may not constitutionally enter final judgments on such claims, the Court did not do so in Stern. Instead, the opinion in Stern makes clear that its holding should be limited to those cases where a state law counterclaim is asserted against a creditor, and where resolution of that counterclaim is not necessary to a determination of whether the creditor's claim should be allowed in the bankruptcy case.

This is not a Stern-type case because: 1) Trustee's fraudulent conveyance claims against the County are not based on state law, but instead, stem solely from the bankruptcy case and arise exclusively under the Bankruptcy Code; and 2) resolution of Trustee's avoidance claims is necessary to determine the allowance or disallowance of the County's creditor claim in the bankruptcy case. Moreover, if Trustee prevails, even if this Court lacks the constitutional power to finally decide Trustee's § 548 and § 544(b) claims against the County, the County can always request de novo review of this Court's findings and conclusions by the district court. Because of this, and because this Court has the unchallenged power to adjudicate Trustee's preference claim against the County, this is not an appropriate situation for withdrawal of reference by the district court.

In re Bujak, 2011 WL 5326038, *4-5 (Bankr. D.Idaho 2011) (slip copy).

For the reasons discussed above, the Court finds it has constitutional authority to enter afinal judgment on Counts I, III, V and VI of the Trustee's Amended Complaint. This Memorandum includes the Court's findings of fact based on the parties' statements, and conclusions of law.

The Trustee's seeks in Count I of the Amended Complaint to avoid obligations incurred and payments made by Debtor in June 2007, additional collateral pledged in May 2008 and a garnishment in February 12, 2009, on grounds said obligations and transfers were fraudulent under 11 U.S.C. §§ 548 and 550 and further seeks in Count II to set avoid the same obligations and transfers pursuant to Cal. Civ. Code §§ 3439.04 and 3439.05, Mont. Code Ann. §§ 31-2-333 and 31-2-334, Colo. Rev. Stat. §§ 38-8-105 and 38-8-106, and other comparable state laws, and 11 U.S.C. §§ 544 and 550. In Count III, the Trustee alleges that a transfer of $45,200.63 in cash to Western Capital is an avoidable preference under 11 U.S.C. § 547; in Count V, the Trustee seeks disallowance of Western Capital's claim; and in Count VI, the Trustee alleges Western Capital's loan was usurious under Montana law.²

FACTS

Western Capital's "Statement of Undisputed Facts" (Docket No. 95-1) asserts the following uncontroverted facts:

1. Plaintiff Richard J. Samson is the acting trustee for the chapter 7 bankruptcy estate of Edra D. Blixseth ("Edra"). (Mont. Bankr. Adv. Proc. 10-94, Dkt. No. 33 ¶ 1.)

2. WCP is a Colorado limited liability company with its principal place of business in Denver, Colorado. (Dkt. No. 33 ¶ 2; Ex. 1.)

3. At all times relevant to this proceeding, Edra was a citizen and resident

of the State of California. (Dkt. No. 33 ¶ 10.)

4. Matthew D. Crocker is Edra's son ("Crocker"). (Dkt. No. 33 ¶ 12.)

The Loan

5. On June 15, 2007, WCP made a loan in the principal amount of $13,065,000.00 (the "Loan") to Monarch GoBuild Construction, LLC ("Monarch GoBuild"); GoBuild, Inc. ("GoBuild"); Blue Sky Development, L.L.C. ("Blue Sky"); and Montana Specs LLC ("Montana Specs") (collectively, the "Borrowers"). (Dkt. No. 33 ¶ 17, Ex. 1.)

6. The purpose of the loan was to provide financing and working capital for the Story Mill project. (Ex. 2 at 13:21 - 15:17.) [Western Capital's exhibits show the loan matured June 14, 2009. Further, the Trustee counters that the primary purpose of the loan was to fund construction on Lots 176 and 178.]

The Borrowers - Monarch GoBuild

7. Monarch GoBuild was a Montana limited liability company. (Ex. 1.)

8. Monarch GoBuild was formed by Monarch Design, LLC ("Monarch Design") and GoBuild. (Ex. 3.)

9. Monarch Design owned a forty five percent interest in Monarch GoBuild. (Id.)

10. Monarch Design was wholly owned by Edra. (Ex. 4 at ¶ 3(d).)

11. GoBuild owned a fifty-five percent interest in Monarch GoBuild. (Ex. 3.)

12. Monarch GoBuild owned certain real property located at 49 Travertine Rd, Big Sky, MT 59716 f/k/a Lot 176 at the Yellowstone Club ("Lot 176") (Ex. 5.)

13. Lot 176 was a spec home built for potential Yellowstone Club members. (See Ex. 6.)

14. On or about September 25, 2007, Lot 176 was appraised at and had a value of $7,150,000.00. (Ex. 6.) [The Trustee counters that the evidence to support this valuation is not admissible.]

15. Using proceeds from the Loan, WCP paid off a mortgage on Lot 176 in the amount of $4,002,334.96. (Ex. 7.)

The Borrowers - GoBuild

16. GoBuild was a Montana corporation. (Ex. 1.)

17. GoBuild f/k/a New Creation Cabinetry was formed by Crocker, and Crocker later became GoBuild's sole shareholder. (Ex. 8 at ¶ 20.)

18. GoBuild was wholly owned by Crocker. (Id.)

19. GoBuild was a construction company whose primary business was building and finishing spec homes in the Yellowstone club. (See Ex. 9.)

20. GoBuild owned a fifty-five percent interest in Monarch GoBuild. (Ex. 3 at p. 2.)

21. GoBuild owned certain real property known as Unit F of Jacobs Crossing Condominium (the "Bozeman Condo"). (Ex. 10.)

22. On or about the time of the Loan, the Bozeman Condo was worth $325,000.00. (Ex. 4.)

The Borrowers - Blue Sky

23. Blue Sky was a Montana limited liability company. (Ex. 1.)

24. Blue Sky was formed by Crocker, and Crocker was Blue Sky's sole member. (Ex. 12.)

25. Blue sky owned the real property commonly known as the Story Mill Project, located in Bozeman, Montana. (Ex. 8 at ¶ 30.)

26. The Story Mill Project was a real estate development in a neighborhood slated to be annexed to Bozeman, Montana. (Ex. 13.)

27. Edra had invested at least $19,500,000.00 in the Story Mill project. (Ex. 14.) [The Trustee disputes that this could be accurately characterized as an "investment," and instead argues Debtor could have loaned or gifted such funds for the benefit of the Story Mill project noting Debtor had no direct or indirect equity interest in the Story Mill project.]

28. On or about September 24, 2007, the Story Mill Project was appraised at and had a value of $15,500,000.00. (Ex. 14 at 4.) [The Trustee counters that Western Capital presents no admissible evidence in support of this assertion, since the exhibit relied upon is not authenticated by any recognized method. The true

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