Tabor v. Davis (In re Davis), Case No. 05-15794-L

CourtUnited States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Western District of Tennessee
Writing for the CourtJennie D. Latta UNITED STATES BANKRUPTCY JUDGE
PartiesIn re CECIL RAY DAVIS, Debtor. MICHAEL T. TABOR, Chapter 7 Trustee, Plaintiff, v. CAROL D. DAVIS, Defendant.
Docket NumberCase No. 05-15794-L,Adv. Proc. No. 07-05152
Decision Date14 June 2016

In re CECIL RAY DAVIS, Debtor.

MICHAEL T. TABOR, Chapter 7 Trustee, Plaintiff,
CAROL D. DAVIS, Defendant.

Case No. 05-15794-L
Adv. Proc.
No. 07-05152


June 14, 2016

Chapter 7


BEFORE THE COURT is the motion of Plaintiff, Michael T. Tabor, Trustee in Bankruptcy (the "Trustee"), seeking summary judgment with respect to his claims that the Defendant, Carol D. Davis, wife of the Debtor, benefitted from certain transfers made by the Debtor. The Trustee seeks

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to avoid these transfers under sections 544, 547, and 548 of the Bankruptcy Code, and to recover the value of the transfers pursuant to section 550. In support of his motion, the Trustee offers the Depositions of Cecil Ray Davis, Carol D. Davis, and Elton Sims, together with related exhibits. The court has also taken judicial notice of certain matters contained in the bankruptcy papers filed by the Debtor. For reasons set forth below, summary judgment will be granted for the Plaintiff in part and for the Defendant in part.


Jurisdiction over a complaint arising under the Bankruptcy Code lies with the district court. 28 U.S.C. § 1334(b). Pursuant to authority granted to the district courts at 28 U.S.C. § 157(a), the district court for the Western District of Tennessee has referred to the bankruptcy judges of this district all cases arising under title 11 and all proceedings arising under title 11 or arising in or related to a case under title 11. In re Jurisdiction and Proceedings Under the Bankruptcy Amendments Act of 1984, Misc. No. 81-30 (W.D. Tenn. July 10, 1984). Proceedings to determine, avoid, or recover preferences, and proceedings to determine, avoid, and recover fraudulent conveyances are core proceedings arising under the Bankruptcy Code. See 28 U.S.C. § 157(b)(2)(F) and (H). Accordingly, the bankruptcy court has statutory authority to enter summary judgment with respect to these claims subject only to appellate review under section 158 of title 11. 28 U.S.C. § 157(b)(1). The bankruptcy court may not, however, have Constitutional authority to hear and finally determine some or all complaints to determine, avoid, and recover fraudulent conveyances. See Stern v. Marshall, 564 U.S. 462, 131 S. Ct. 2594 (2011). So long as the parties knowingly and voluntarily consent, the bankruptcy court may hear and finally determine so-called "Stern claims." Wellness Int'l Network, Ltd. v. Sharif, 575 U.S. ___, 135 S. Ct. 1932 (2015). The Plaintiff asserts

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and the Defendant agrees that the causes of action raised in Count I (Fraudulent Transfers) and Count II (Ponzi Scheme Preferential Transfers) of the Complaint are core proceedings which the bankruptcy court may hear and determine. With respect to Count III (Unjust Enrichment), the Defendant asserts that the Trustee lacks standing to pursue that cause of action against the Defendant. The Trustee's Motion for Summary Judgment is silent with respect to Count III.


A motion for summary judgment may be granted if the movant shows that 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), incorporated at Fed. R. Bankr. P. 7056. "'Summary judgment is proper if the evidence, taken in the light most favorable to the nonmoving party, shows that there are no genuine issues of material fact and that the moving party is entitled to judgment as a matter of law.'" Pazdzierz v. First American Title Ins. Co. (In re Pazdzierz), 718 F.3d. 582, 586 (6th Cir. 2013), quoting Mazur v. Young, 507 F.3d 1013, 1016 (6th Cir. 2007). The Court of Appeals for the Sixth Circuit has described the standards for granting summary judgment as follows:

A genuine issue of material fact exists when, "there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986). In deciding whether this burden has been met by the movant, this court views the evidence in the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587; 106 S. Ct. 1348, 89 L. Ed. 2d 538 (1986). However, to survive summary judgment, the plaintiff must present affirmative evidence sufficient to show a genuine issue for trial. Anderson, 477 U.S. at 249, 106 S. Ct. 2505. Therefore, "[i]f evidence is merely colorable, or is not significantly probative, summary judgment may be granted." Id. at 249-50, 106 S. Ct. 2505.

White v. Wyndham Vacation Ownership, Inc., 617 F.3d 472, 475-76 (6th Cir. 2010).

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The following facts are not in dispute:

1. The underlying bankruptcy case was commenced by the filing of an involuntary petition against the Debtor on December 22, 2005.

2. The Plaintiff, Michael T. Tabor, is the duly appointed and acting Trustee.

3. The Defendant, Carol D. Davis, is the non-filing wife of the Debtor.

4. On January 16, 2007, the Debtor entered into a Plea Agreement in the case of United States of America v. Davis, Cr. No. 1-07-10002 (W.D. Tenn. January 16, 2007), in which he agreed to plead guilty to Counts I and II of a two-count Information which alleged that he engaged in a Ponzi scheme from 2001 until October 2005. Dep. of Cecil Ray Davis, February 23, 2007, Exs. 3 and 4.

5. The Debtor's scheme included obtaining personal loans from a number of individuals by promising them interest at 25-30% per annum and later, per quarter. Dep. of Cecil Ray Davis, pp. 9-12; 32-33.

6. Proceeds from these loans were deposited to the Debtor's personal checking account at Farmers & Merchants Bank, Milan, Tennessee. Dep. of Cecil Ray Davis, pp. 22, 27, 42, 46-47.

7. The Debtor then wrote checks from that account to pay interest as it came due to lenders, and to make deposits to accounts held by the various companies that he controlled, and to transfer funds to joint accounts held by him and the Defendant. Dep. of Cecil Ray Davis, pp. 21-24, 27.

8. The Farmers & Merchant account is the only one of the accounts listed by the Debtor on Schedule B held in the Debtor's name alone. Schedule B shows three accounts held by "Ray or

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Carol Davis," one at the Bank of Milan, and two at BancorpSouth. Bankr. Dkt. 51, Schedules A-J, p. 9.

9. During the period of time that the Debtor was engaged in a Ponzi scheme, the Debtor and the Defendant obtained a number of loans from BancorpSouth. Dep. of Elton Sims, President of BancorpSouth, Exs. 2-3, 5-8.

10. When the bankruptcy petition was filed, the Debtor and the Defendant were indebted to BancorpSouth on six notes which are the subject of this adversary proceeding and are described as follows:

Note Number
Balance Due at
Residence - 1st TD -
10 Forrest Ford Road
Ray and
Carol Davis
Commercial Bldgs -
1st TD - 6090 E Van
Hook - Tracts 2 and 1
Ray Davis
Commercial Property
- 2nd TD - 6090 E
Van Hook; 2nd TD
Hwy 70-79; 2nd TD
Belews Chapel Rd.
Ray Davis
Farm -1st TD -
Belews Chapel Rd. -
Tract 4
Ray and
Carol Davis
Vacant Land - 1st TD
- Hwy 79 and 70A
Ray and
Carol Davis

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2 Residential Lots -
1st TD - Lots 22 & 23
Oak Tree Subdivision
Ray and
Carol Davis

11. For each of these loans, the note describes the Defendant and the Debtor as "co-borrowers," "makers," or "co-signers," and indicates that the Defendant and the Debtor are "jointly and severally" liable for the debts. Dep. of Elton Sims, Exs. 2-3, 5-8.

12. During the period in which the Debtor was engaged in the Ponzi scheme, numerous payments were made on the six loans which are the subject of this adversary proceeding.

13. Elton Sims testified that he thought that the payments were made from the Debtor's and Defendant's personal checking account at BancorpSouth. Dep. of Elton Sims, p. 63.

14. The Defendant testified that she and the Debtor maintained joint checking and savings accounts at BancorpSouth. Dep. of Carol Davis, p. 29.

15. The Defendant also testified that during the period 2001-2005, she was not employed, and could not have contributed any funds to the joint accounts except one-half of an inheritance in the amount of $55,000.

16. Either before the case was filed or during the course of the bankruptcy case, most of the collateral for these loans was sold. The following table compares the scheduled value of the collateral to the net sale proceeds:

Scheduled Value
Sale Proceeds
10 Forrest Ford Road

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6090 E Van Hook and Vacant
Land - Hwy 79 and 70A
Belews Chapel Rd.
Lot 22 Oak Tree Subdivision
Lot 23 Oak Tree Subdivision

17. The residence and barn together with surrounding acreage were valued by the Debtor at $250,000 at the time of filing. Schedule A, Bankr. Dkt. 51.

18. Thirteen acres of land surrounding the residence were sold by the Trustee for $113,000. Dep. of Elton Sims, p. 56, ll. 18-21.

19. The net proceeds of $109,183.27 were applied as follows:

Loan Number
Paid in full
Paid in full

Dep. of Elton Sims, Ex. 10.

20. The residence and three acres were retained by the Debtor and the Defendant.

21. BancorpSouth released its liens on the residence and three acres retained by the Debtor and the Defendant.

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22. The residence and barn together with surrounding acreage were held by the Debtor and Mrs. Davis as tenants by the entirety. Schedule A, Bankr. Dkt. 51.


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