Tabor v. Lineback (In re Lineback)

• Decision Date: 17 December 2013
• Docket Number: Adv. Pro. No. 12-5154,Case No. 12-11369
• Parties: In re: ROBERT D. LINEBACK, Debtor MICHAEL T. TABOR, AS STANDING 7 TRUSTEE, Plaintiff, v. ROBERT D. LINEBACK and CAROLYN BLACKWELL, Defendants.
• Court: U.S. Bankruptcy Court — Western District of Tennessee

In re: ROBERT D. LINEBACK, DebtorMICHAEL T. TABOR, AS STANDING 7 TRUSTEE, Plaintiff, v. ROBERT D. LINEBACK and CAROLYN BLACKWELL, Defendants.

Case No. 12-11369

Adv. Pro. No. 12-5154

UNITED STATES BANKRUPTCY COURT WESTERN DISTRICT OF TENNESSEE

Filed: December 18, 2013

December 17, 2013

Chapter 7

MEMORANDUM OPINION RE: TRUSTEE'S AMENDED COMPLAINT TO AVOID AND RECOVER FRAUDULENT TRANSFER AND DEFENDANTS' DEFENSES AND COUNTERCLAIMS THERETO

At issue in this adversary proceeding is whether a July 2010 transfer of real property from the debtor to his mother is avoidable as a preferential transfer pursuant to 11 U.S.C. § 548(a)(1). The Chapter 7 Trustee alleges that the transfer was actually and constructively fraudulent and, as such, may be avoided under § 548(a)(1)(A) and (B). The defendants, on the other hand, assert a number of defenses to the trustee's action including the argument thatthe debtor only held the property in trust for his mother and therefore did not have an equitable interest in the property at the time he transferred it. The defendants also assert several counterclaims against the trustee.

For the reasons that follow, the Court concludes that the 2010 transfer from Lineback to Blackwell is avoidable as a fraudulent conveyance pursuant to 11 U.S.C. § 548(a)(1)(A) and (B). The Court also concludes that the defenses and counterclaims asserted by Lineback and Blackwell in response to the trustee's avoidance action are without merit.

1. Jurisdiction

This proceeding arises in a case referred to this Court by the Standing Order of Reference, Misc. Order No. 84-30 in the United States District Court for the Western District of Tennessee, Western and Eastern Divisions, and is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(H). This Court has jurisdiction over core proceedings pursuant to 28 U.S.C. §§ 157(b)(1) and 1334 and thus may enter a final order in this matter. This memorandum opinion shall serve as the Court's findings of facts and conclusions of law. Fed. R. Bankr. P. 7052.

2. Facts

On October 7, 2002, Carolyn Blackwell ("Blackwell") withdrew $25,000.00 from a home equity line of credit ("Line of Credit") with Union Planters Bank, which subsequently became Regions Bank ( "Bank"). Blackwell gave her son, Robert Lineback ("Lineback"), $22,000.00 of the funds for the purpose of purchasing real property. Lineback purchased a mobile home and lot at 1590 Winston Road in McKenzie, Tennessee ("Property"), from Kenneth M. and Gertrude Baskin ("Baskins"). On October 8, 2002, the Baskins executed a warranty deed conveying their fee simple interest in the Property to Lineback and his then-wife Valerie Lineback.

On November 5, 2002, Lineback executed a deed of trust for the Property in favor of the Bank. The deed of trust indicated that the Property secured Blackwell's Line of Credit with the Bank.

Lineback and Blackwell (collectively "Defendants") contend that Lineback made monthlypayments to the Bank under the Line of Credit from 2002 until he became disabled in 2007. The Defendants also contend that (1) Blackwell took over responsibility for making the monthly payments to the Bank after Lineback became disabled; and (2) Blackwell continued to make the monthly payments until September 29, 2008, when she paid the Line of Credit in full by remitting a lump sum payment of $15,750.21 to the Bank. Although the Trustee agrees that the trial exhibits clearly demonstrate that these payments were made, he disputes the Defendants' contention that the evidence proves Blackwell made the payments. The payment print-out from the Bank does not indicate who made the payments. It only shows that the payments were in fact made.

Lineback and his wife divorced in 2009. As part of the divorce settlement, Valerie Lineback signed a quitclaim deed conveying her fee simple interest in the Property to Lineback on June 29, 2010. Approximately one month later, on July 27, 2010, Lineback conveyed his fee simple interest in the Property to Blackwell by quitclaim deed. The deed indicated that the consideration paid for the Property was "$0-Love and Affection Mother." Both parties signed the deed under oath.

On May 15, 2012, Lineback filed a Chapter 7 petition for bankruptcy relief. Michael Tabor ("Trustee") was appointed as the Chapter 7 Trustee in the case. Lineback's bankruptcy petition indicated he had $66,877.23 of unsecured, non-priority debt and $1,119.00 of monthly income. This income consisted solely of social security disability benefits. Lineback also disclosed the July 27, 2010 transfer of Property to Blackwell in his Statement of Financial Affairs.

On October 2, 2012, the Trustee filed a complaint to avoid and recover a fraudulent transfer ("Complaint") against Lineback and Blackwell.¹ Lineback and Blackwell filed identical answers to the Complaint on November 26, 2012, in which they asserted several "affirmative defenses" to the Complaint. Specifically, Lineback and Blackwell asserted that: (1)Blackwellreceived the Property for value and in good faith and therefore under 11 U.S.C. § 548(c), the Court should permit Blackwell to retain the Property; (2) the Trustee's claim against Lineback would create unjust enrichment at the expense of Blackwell because the home would have been acquired for no value except what value Blackwell provided; (3) Blackwell has always held beneficial and equitable title to the Property, while Lineback held only legal title, and thus the Trustee did not have standing to challenge the transfer; (4) there was actual consideration paid to Lineback, or for his benefit, and the consideration was a reasonably equivalent value for the transfer as it was traceable to the original purchase proceeds; and (5) the transfer involved a reasonably equivalent value of property and debt, such that the transfer did not change Lineback's solvency.

Lineback and Blackwell's answers also included several counterclaims against the Trustee ("Counterclaims"). In their Counterclaims, Lineback and Blackwell asked the Court to: (1) enter judgment in favor of Blackwell for the purchase price of the Property; (2) impose a constructive trust in favor of Blackwell for the Property; (3) grant an equitable lien on the property in favor of Blackwell in the amount of the purchase price of $20,000.00; and (4) enter judgment in favor of Blackwell for improvements she made to the property in the amount of $10,000.00. In paragraph 7 of their Counterclaims, the Defendants stated that "Blackwell purchased and/or funded the purchase of the home for Lineback and his wife with the agreement that they would pay for the home, either directly to Blackwell or to the finance company." (Answers at 4, Bankr. Case No. 12-11369, Adv. Proc. No. 12-5154, ECF Nos. 19 & 20.)

On April 24, 2013, the Trustee filed an answer to the Counterclaims in which he asserted several defenses to the Defendants' claims: (1) the Counterclaims fail to state a claim upon which relief can be granted; (2) the statute of frauds and the equitable doctrine of estoppel bar Blackwell and Lineback's requested relief; and (3) the lack of consideration for the transfer of the Property bars Blackwell and Lineback from recovering under any of their Counterclaims.

The Court conducted a trial in this matter on August 21, 2013. During the trial, the parties stipulated to several facts: (1) Lineback was disabled from 2007 until approximatelyMay 15, 2012, the date on which Lineback filed for bankruptcy relief; (2) Lineback accrued significant debts during the period in which he was disabled and was not able to pay his debts as they became due; and (3) Lineback's debts exceeded his assets at the time he transferred the Property to Blackwell.

None of the parties to this adversary proceeding testified at the trial in this matter. The trial consisted solely of statements and legal arguments made by the parties' attorneys. The parties filed post-trial briefs on September 20, 2013. In their post-trial brief, the Defendants also asked the Court to award Blackwell a resulting trust in the Property. They also increased the amount of money they were seeking for the improvements Blackwell allegedly made to the property from $10,000 to "$17,500 mortgage and other improvements, property taxes, and otherwise." (Defs.' Post Trial Br. At 9, Bankr. Case No. 12-11369, Adv. Proc. No. 12-5154, ECF No. 46.)

3. Analysis

The Trustee in this adversary proceeding is seeking to avoid Lineback's July 27, 2010 transfer of the Property to Blackwell pursuant to 11 U.S.C. § 548(a)(1)(A) and (B). These Bankruptcy Code subsections provide that:

(a)(1)The trustee may avoid any transfer . . . of an interest of the debtor in property, or any obligation . . . incurred by the debtor, that was made or incurred on or within 2 years before the date of the filing of the petition, if the debtor voluntarily or involuntarily-

(A) made such transfer or incurred such obligation with actual intent to hinder, delay, or defraud any entity to which the debtor was or became, on or after the date that such transfer was made or such obligation was incurred, indebted; or

(B)(i) received less than a reasonably equivalent value in exchange for such transfer or obligation; and

(ii)(I) was insolvent on the date that such transfer was made or such obligation was incurred, or became insolvent as a result of such transfer or obligation;(II) was engaged in business or a transaction, or was about to engage in business or a transaction, for which any property remaining with the debtor was an unreasonably small capital;

(III) intended to incur, or believed that the debtor would incur, debts that would be beyond the debtor's ability to pay as such debts matured; or

(IV) made such transfer to or for the benefit of an insider, or incurred such obligation to or for the benefit of an insider, under an employment contract and not in the ordinary course of business.

11 U.S.C. § 548(a)(1).

Section 548(a)(1) provides for the avoidance of two types of fraud: (1) actual...