Seaver v. New Buffalo Auto Sales, LLC (In re Hecker)

• Citation: 459 B.R. 6,66 Collier Bankr.Cas.2d 747
• Decision Date: 20 October 2011
• Docket Number: BAP No. 11–6007.
• Parties: In re Dennis E. HECKER, Debtor.Randall L. Seaver, Trustee, Plaintiff–Appellant v. New Buffalo Auto Sales, LLC, a Minnesota limited liability company, f/k/a New Buffalo Chrysler, LLC; Maurice J. Wagener; and Palladium Holdings, LLC, Defendants–Appellees.
• Court: Bankruptcy Appellate Panels. U.S. Bankruptcy Appellate Panel, Eighth Circuit

459 B.R. 6

66 Collier Bankr.Cas.2d 747

In re Dennis E. HECKER, Debtor.Randall L. Seaver, Trustee, Plaintiff–Appellant

v.New Buffalo Auto Sales, LLC, a Minnesota limited liability company, f/k/a New Buffalo Chrysler, LLC; Maurice J. Wagener; and Palladium Holdings, LLC, Defendants–Appellees.

BAP No. 11–6007.

United States Bankruptcy Appellate Panel of the Eighth Circuit.

Submitted: July 27, 2011.Decided: Oct. 20, 2011.

Thomas Charles Atmore, argued, Matthew R. Burton, on the brief, Minneapolis, MN, for appellant.

Mychal A. Bruggemann, argued, Minneapolis, MN, for appellee.

Before SCHERMER, VENTERS, and NAIL, Bankruptcy Judges.

NAIL, Bankruptcy Judge.

Trustee Randall L. Seaver appeals the January 19, 2011 summary judgment of the bankruptcy court in favor of New Buffalo Auto Sales, LLC, Maurice J. Wagener, and Palladium Holdings, LLC. We affirm in part, reverse in part, and remand for further proceedings.

BACKGROUND

Koch Group Mpls, LLC (“Koch Group”) obtained a judgment against Dennis E. Hecker (“Debtor”) for $813.67 on April 29, 2009. New Buffalo Auto Sales, LLC (“New Buffalo”) and Maurice J. Wagener (“Wagener”) obtained a judgment against Debtor for $324,938.72 on May 7, 2009. When the judgments were entered, Debtor owned certain nonexempt real property located at 1615 Northridge Drive in Medina, Minnesota (“Northridge”), which was registered under Minnesota's Torrens law.

Debtor filed for relief under chapter 7 of the bankruptcy code on June 4, 2009. On September 28, 2009, the bankruptcy court granted U.S. Bank, which held a mortgage against Northridge, relief from the automatic stay. U.S. Bank's motion indicated Debtor had little or no equity in the property. The property went into foreclosure.

On January 7, 2010, Trustee Randall L. Seaver (“Trustee”) filed a motion for approval of a settlement he had reached with Debtor, Ralph Thomas, and another individual. As part of the settlement, Trustee agreed to transfer the bankruptcy estate's interest in Northridge to Thomas via a trustee's deed in exchange for $75,000.00 and the resolution of some other matters.

On January 19, 2010, while Trustee's settlement motion was pending, U.S. Bank purchased Northridge at the sheriff's foreclosure sale for $213,263.00. A six-month redemption period began to run under MINN. STAT. § 580.23. Other encumbrances against the property at the time substantially exceeded its assessed value.¹

By order dated January 27, 2010, the bankruptcy court approved Trustee's settlement, and Trustee delivered a trustee's deed to Thomas. However, Thomas never registered the trustee's deed, and the registrar of titles never issued a certificate of title to Thomas: The property remained registered in Debtor's name. On February 23, 2010, the bankruptcy court granted Mortgage Electronic Registration Systems, Inc., which also held a mortgage against Northridge, relief from the automatic stay.

In a letter to the bankruptcy court dated March 18, 2010, Trustee's attorney reported the $75,000.00 had not come from Thomas and Thomas had no intent to purchase Northridge. The attorney reported an initial investigation indicated the $75,000.00 had instead come from Debtor's children's and grandchildren's trust accounts. At some point, Thomas returned the trustee's deed to Trustee and also executed a quitclaim deed to Trustee. The $75,000.00 nevertheless remains in Trustee's hands, apparently subject to a dispute over whether the funds comprised property of the bankruptcy estate even before they were tendered as part of the January 7, 2010 settlement.

On April 20, 2010, New Buffalo and Wagener registered their judgment on the Torrens certificate of title to Northridge. Two days later, Koch Group registered its judgment on the Torrens certificate.² The registration of the judgments created judgment liens against Northridge. Minn.Stat. §§ 508.63, 508A.63, and 548.09. Koch Group assigned its judgment to Palladium Holdings, LLC (“Palladium”) on June 11, 2010. Palladium registered the assignment on July 8, 2010, and someone satisfied the judgment on July 20, 2010.³

Neither Debtor nor Trustee timely redeemed Northridge from foreclosure under MINN. STAT. § 580.23. Other senior encumbrance holders likewise failed to redeem under Minn.Stat. § 580.24. There seems to be no dispute the foreclosure of these other interests and encumbrances is what created measurable equity in Northridge. On July 22, 2010, New Buffalo, using its post-petition judgment lien, exercised a right of redemption and then sold Northridge to Palladium. In exchange, Palladium gave New Buffalo the $218,025.30 it needed to redeem the property, paid it an additional $80,000.00 cash, and gave it a $320,000.00 mortgage against the property.

Trustee registered a notice of bankruptcy case on the certificate of title on July 23, 2010.⁴ Three days later, he commenced an adversary proceeding against New Buffalo and Wagener and registered a notice of lis pendens on the certificate of title. Two days after that, New Buffalo registered its $320,000.00 mortgage against the property. The next day, Palladium filed a certificate of redemption for $561,500.00. Eleven days later, Trustee added Palladium as a defendant in the adversary proceeding by a second amended complaint.

Under the second amended complaint, Trustee sought to avoid New Buffalo and Wagener's and Palladium's judgments against Northridge as preferential transfers under 11 U.S.C. § 547(b) and to have the post-petition registration of the judgments avoided under § 549.⁵ He further sought to preserve the value of the judgments, the judgment liens, and the subsequent transfers for the bankruptcy estate under §§ 550 and 551. Finally, he wanted the bankruptcy court to declare Palladium could not use Koch's satisfied judgment to redeem Northridge. The parties presented the matter to the bankruptcy court on cross motions for summary judgment.⁶

After hearing oral argument, the bankruptcy court granted summary judgment for the defendants, New Buffalo, Wagener, and Palladium (“Judgment Holders”). In an oral decision, the court concluded: (1) the docketing of the pre-petition judgments did not constitute preferential transfers of an interest in Northridge because, under Minnesota's Torrens law, the judgments had not been registered on the certificate of title pre-petition; (2) even if the docketing of the pre-petition judgments constituted transfers, the transfers were not avoidable because they had no value since there was no equity in Northridge at the time of the docketing; (3) even if the post-petition registration of the judgments on the certificate of title constituted transfers, the transfers were not avoidable, because they had no value, since there was no equity in Northridge at that time; (4) a registration of the trustee's deed conveying Northridge to Thomas was not necessary under Minnesota's Torrens law for the conveyance to be valid between the bankruptcy estate and Thomas, so no avoidable post-petition transfer of property of the bankruptcy estate occurred when the judgments were registered post-petition; (5) even if the registration of the judgments was a transfer of property of the bankruptcy estate, the transfer had been authorized by the bankruptcy court by virtue of its approval of Trustee's sale of Northridge; (6) Trustee did not have a recoverable claim against Wagener because Wagener did not receive any value from the transfers; and (7) under § 550, Trustee could only recover from Judgment Holders the value of the transfers, not the ultimate benefit received by Judgment Holders from the transfers.

On appeal, Trustee argues the pre-petition docketing of the judgments constituted transfers for value made within the preference period that were avoidable under § 547; Judgment Holders' post-petition registration of their judgments was avoidable under § 549, because the bankruptcy estate had not been divested of its interest in Northridge post-petition; and he was entitled to recover the benefits received by Judgment Holders from the judgments and attendant judgment liens—not just the value of the transfers themselves—under § 550.⁷

STANDARD OF REVIEW

We review a bankruptcy court's grant of summary judgment de novo, Mwesigwa v. DAP, Inc., 637 F.3d 884, 887 (8th Cir.2011) (citing Anderson v. Durham D & M, L.L.C., 606 F.3d 513, 518 (8th Cir.2010)). ⁸ We will affirm if “there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). “We may affirm on any basis supported by the record.” Schoelch v. Mitchell, 625 F.3d 1041, 1046 (8th Cir.2010) (citing Moyle v. Anderson, 571 F.3d 814, 817 (8th Cir.2009)). Here we must review de novo whether the bankruptcy court's conclusions interpreting the relevant statutes and applying them to the facts were correct. Fisette v. Keller (In re Fisette), 455 B.R. 177, 180 (8th Cir. BAP 2011); Checkett v. Sutton (In re Sutton), 365 B.R. 900, 904 (8th Cir. BAP 2007).

DISCUSSION

11 U.S.C. § 547

If we assume Trustee is correct that under § 547(e)(2)(C), Judgment Holders' pre-petition judgments and attendant judgment liens may be deemed “made” immediately before the petition date, see, e.g., Wells Fargo Home Mortgage, Inc. v. Lindquist, 592 F.3d 838, 843–44 (8th Cir.2010), then under § 547(b)(5) Trustee must show the judgment liens enabled Judgment Holders to receive more than they would have received in a hypothetical chapter 7 liquidation where the judgments had not been perfected. 11 U.S.C. § 547(b)(5). This hypothetical liquidation test is conducted as of the petition date. Falcon Creditor Trust v. First Insurance Funding (In re Falcon Products, Inc.), 381 B.R. 543, 547 (8th Cir. BAP 2008).

The parties agree there was no equity in Northridge on the petition date to support these judgment liens. Accordingly, Judgment Holders' judgments and attendant judgment liens, if deemed perfected just before the petition date, did not enable them...