Slone v. Anderson (In re Anderson)

• Decision Date: 10 September 2013
• Docket Number: Adversary No. 10–3361.,Bankruptcy No. 10–30064.
• Citation: 511 B.R. 481
• Parties: In re Jason E. ANDERSON, Erica L. Anderson, Debtors. Ruth A. Slone, Chapter 7 Trustee, Plaintiff v. Jason E. Anderson, et al., Defendants.
• Court: U.S. Bankruptcy Court — Southern District of Ohio

511 B.R. 481

In re Jason E. ANDERSON, Erica L. Anderson, Debtors.Ruth A. Slone, Chapter 7 Trustee, Plaintiff

v.Jason E. Anderson, et al., Defendants.

Bankruptcy No. 10–30064.

Adversary No. 10–3361.

United States Bankruptcy Court,

S.D. Ohio,

Western Division.

Signed Sept. 9, 2013.

Entered Sept. 10, 2013.

Lee A. Slone, Ruth A. Slone, Dayton, OH, for Plaintiff.

Jason E. Anderson, pro se.

Erica L. Anderson, pro se.

Tyler W. Kahler, Canton, OH, for Defendants.

LAWRENCE S. WALTER, Bankruptcy Judge.

DECISION OF THE COURT:

1) DISMISSING ALL CAUSES OF ACTION AGAINST DEBTORS JASON AND ERICA ANDERSON;

2) AVOIDING TRANSFER OF $74,102.60 TO 1ST NATIONAL CASH REFUND, INC. AS AN UNAUTHORIZED POST–PETITION TRANSFER PURSUANT TO 11 U.S.C. § 549 AND ORDERING RECOVERY OF TRANSFERRED PROPERTY FROM 1ST NATIONAL PURSUANT TO 11 U.S.C. § 550; AND

3) HOLDING CARL WOODFORD JOINTLY LIABLE FOR RECOVERY OF $62,009.00 AS AN IMMEDIATE TRANSFEREE PURSUANT TO 11 U.S.C. § 550

SUMMARY

As set forth in great detail below, the court, following trial, has made the following determinations: All of the Trustee's claims against the Debtors are dismissed. The Debtors' transfer of $74,102.60 of estate property to Defendant 1st National Cash Refund, Inc. is avoided under 11 U.S.C. § 549 as an unauthorized post-petition transfer. The Trustee is entitled to recover $74,102.60 from 1st National Cash Refund, Inc. as the initial transferee pursuant to 11 U.S.C. § 550(a)(1). Furthermore, Defendant Carl Woodford is jointly and severally liable to the Trustee for the $62,009.00 he withdrew from 1st National Cash Refund Inc.'s account on September 3, 2010 as an immediate transferee pursuant to 11 U.S.C. § 550(a)(2).

INTRODUCTION

The court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157(a) and 1334 and the standing General Order of Reference in this District.

This matter is before the court on the Second Amended Complaint [Adv. Doc. 75] filed by Plaintiff Ruth A. Slone, Chapter 7 Trustee (“Trustee”) seeking recovery of property of the estate or avoidance of a post-petition transfer among other claims. The complaint was filed against the alleged transferors, Debtor–Defendants Jason and Erica Anderson (“Debtors”) and the alleged transferees / holders of the property, Defendants 1st National Cash Refund, Inc. (“1st National”) and Carl Woodford (“Woodford”).

The Trustee alleges that, after their bankruptcy filing and discharge, the Debtors hired 1st National to recover $74,102.60 in proceeds being held by the Common Pleas Court of Delaware County, Ohio (“Delaware County Court”) resulting from a pre-petition foreclosure and sale of real property owned by the Debtors. The Trustee alleges that those proceeds were property of the Debtors' estate and were not disclosed by the Debtors on their schedules or at any time prior to their discharge and the closure of their case. The Trustee asserts that the proceeds and/or damages are recoverable from the Debtors and/or 1st National under theories of turnover of property of the estate pursuant to 11 U.S.C. § 542; a violation of the automatic stay pursuant to 11 U.S.C. § 362; conversion; or as an unauthorized post-petition transfer pursuant to 11 U.S.C. § 549. Furthermore, the Trustee asserts that the corporate veil can be pierced so that both 1st National and Woodford, who allegedly controlled 1st National, are liable as transferees.

The matter proceeded to trial on March 26, 2013. The court has carefully considered and weighed the testimony of the witnesses present at the trial as well as the exhibits admitted into evidence. The following decision constitutes the court's findings of fact and conclusions of law in accordance with Fed. R. Bankr.P. 7052.

FINDINGS OF FACT

A. Debtors' Bankruptcy Case and the Undisclosed Foreclosure Proceeds

On January 8, 2010, Debtors filed a joint Chapter 7 bankruptcy petition and schedules. They listed as assets in their schedules neither real property nor proceeds from the sale of real property. However, in their Statement of Financial Affairs, Debtors noted a Delaware County, Ohio foreclosure action (“foreclosure action”) on a condo that the Debtors had owned located at 562 Spring Valley Drive in Lewis Center, Ohio (the “condo”). The Debtors stated that the status or disposition of the foreclosure action was “Judgment—Sold at Sheriff Sale” [Bankr.Case No. 10–30061, Doc. 1, p. 34]. No mention is made of any equity in the property or proceeds owed to the Debtors from this sale. However, in Schedule F, the Debtors list a mortgage creditor, Litton Loan Servicing, owed a deficiency balance of $37,113.00 on the condo.

The Debtors' § 341 meeting of creditors was held on March 3, 2010. At the meeting, the Trustee asked the Debtors if they had listed all of their assets in their bankruptcy petition and schedules. They answered that they had. The Trustee further questioned whether the Debtors were owed any money. The Debtors said no. The Trustee specifically asked them about the foreclosure action listed in their Statement of Financial Affairs. The Debtors said that the foreclosure was completed and that there was no money owed to them or proceeds due from anybody.

On or about February 10, 2010, the Trustee received a proposed agreed order from Hidden Springs Condominium Association requesting that the Trustee agree to relief from the automatic stay in connection with the foreclosure action. The Trustee signed the agreed order that was then entered by the court on March 10, 2010. The order granted the condo association relief from the stay to continue final post-judgment proceedings related to the foreclosure including completing the confirmation of the sheriff sale of the condo that had occurred on September 16, 2009. The Trustee did not abandon the condo property. The Trustee testified at the hearing that she routinely signs such relief from stay requests because they allow the foreclosure to continue without releasing any of the Trustee's rights. She also testified that the request from the condo association did not alert her to the fact that there remained any surplus funds after the foreclosure and sale.

At no point during the Debtors' bankruptcy case did the Trustee review the Delaware County Court's foreclosure docket. The Trustee testified that she did not review the docket because both the Debtors' schedules and statements at the § 341 meeting indicated that there was no money owing to them from the foreclosure. The Trustee further testified that it was not within the normal course of her duties to check a foreclosure docket in such circumstances. ¹ The Trustee said that she received no alert that the schedules were inaccurate or any other indication that would suggest the need to review the foreclosure docket.

What the Trustee would have found upon review was a Judgment Entry of Confirmation and Order of Distribution [Pl.Ex. 12] entered by the Delaware County Court on December 8, 2009, and consequently, on the docket before the Debtors' bankruptcy case was filed. The order stated that the condo had been sold and that the mortgage liens were deemed satisfied [ Id.]. The order provided a list of how the proceeds were to be distributed including funds to be disbursed to the appraiser and sheriff, real estate taxing authority, and the condo association [ Id.]. Significantly, the order noted a remaining balance of $74,343.23 that was to be held by the court until further order [ Id.]. This remaining balance of proceeds from the sale of the condo was apparently a result of a default in the foreclosure action by the mortgage lien holder MERS or Deutsche Bank National Trust Company (“Deutsche Bank”) ² which failed to file an answer [Transcript of March 26, 2013 Hearing (“Tr.”) pp. 63–64]. A nunc pro tunc Judgment Entry was subsequently entered on April 28, 2010, which, again, provided a list of how the proceeds were to be distributed with a total of $74,102.60 remaining and to be held by the court until further order [Pl.Ex. 14]. The Debtors testified that they had no idea that there was $74,102.60 remaining after the foreclosure sale.

After the § 341 meeting and without review of the foreclosure docket, the Trustee concluded that there were no assets to distribute to creditors and filed a report of no distribution. The Debtors received their discharge on May 11, 2010 and the case was closed on May 26, 2010.

B. 1st National/Carl Woodford and the Discovery of the Foreclosure Proceeds

Following the Debtors' discharge, the foreclosure funds remained with the Delaware County Clerk of Courts until the funds were discovered by Woodford of 1st National. According to Woodford's testimony, 1st National was incorporated in Ohio in 2001 and is a “professional locator firm” [Tr. p. 127]. 1st National is in the business of searching for missing and outstanding funds throughout the country and helping return those funds to their rightful owners whether companies or individuals.

Woodford is the President, CEO, statutory agent, and one of two shareholders (his wife is the other) of 1st National. In addition to his work for 1st National, Woodford, who holds a bachelor's degree in business management, is also general manager of Woodford Contemporary Real Estate. Woodford has thirty years of experience in real estate including investing, working as an agent, working in televised real estate educational programs as well as researching foreclosure cases. In fact, Woodford testified that while foreclosure cases can be tricky and complex, he had the experience necessary to have a clear understanding of them [Tr. p. 166].

First National has no employees. Besides some part-time assistants hired from time to time and paid on commission, Woodford operates the business by himself. Only Woodford writes checks and deposits funds for the company. His wife, the other shareholder, has no part in the day to day operation of the business. Woodford cannot recall the last time 1st National held a shareholder...