Tyler v. Banks (In re Tyler)

Decision Date06 June 2013
Docket NumberAdversary No. 12–05632–JRS.,Bankruptcy No. 12–79100–JRS.
Citation493 B.R. 905
PartiesIn re Maurice Michael TYLER, II, Debtor. Maurice Michael Tyler, II, Plaintiff, v. Bruce Banks d/b/a Excelsior Property Holdings, LLC, Casa De Belli Enterprises, L.L.C., and BSD Resources, LLC, Defendants.
CourtU.S. Bankruptcy Court — Northern District of Georgia


Recognized as Unconstitutional

28 U.S.C.A. § 157(b)(2)(C)

E.L. Clark, Clark and Washington, P.C., Atlanta, GA, for Debtor.


JAMES R. SACCA, Bankruptcy Judge.

This case involves the foreclosure sale of the Debtor's home for a price that the Debtor contends represented pennies on the dollar. The Debtor commenced this adversary proceeding seeking to avoid the transaction as a fraudulent transfer for less than reasonably equivalent value pursuant to § 548 of the Bankruptcy Code. Now before the Court is the Debtor's Motion for Summary Judgment. [Doc. 10]. The Defendants filed a response [Doc. 16] but have not filed a cross-motion for summary judgment. The Debtor did not file a reply to the Defendants' response.

Summary Judgment Standard

Summary judgment is appropriate only when there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56. The substantive law applicable to the case determines which facts are material. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A factual issue is genuine if there is sufficient evidence for a reasonable jury to return a verdict in favor of the non-moving party. Id. The Court “should resolve all reasonable doubts about the facts in favor of the non-movant, and draw all justifiable inferences in his favor.” United States v. Four Parcels of Real Prop., 941 F.2d 1428, 1437 (11th Cir.1991) (citations and punctuation omitted). The court may not weigh conflicting evidence or make credibility determinations. Hairston v. Gainesville Sun Publ'g Co., 9 F.3d 913, 919 (11th Cir.1993), reh'g denied,16 F.3d 1233 (1994) (en banc).

For issues upon which the moving party bears the burden of proof at trial, he must affirmatively demonstrate the absence of a genuine issue of material fact as to each element of his claim on that legal issue. Fitzpatrick v. City of Atlanta, 2 F.3d 1112, 1115 (11th Cir.1993). He must support his motion with credible evidence that would entitle him to a directed verdict if not controverted at trial. Id. If the moving party makes such a showing, he is entitled to summary judgment unless the non-moving party comes forward with significant, probative evidence demonstrating the existence of an issue of material fact. Id.

Factual Background

Keeping the above standard in mind, the Court lays out the following facts based on the parties' submissions. On March 30, 2012, the Debtor borrowed $15,450.00 (the “Loan”) from Excelsior Property Holdings, LLC (Excelsior) and executed a Security Deed and Agreement, which authorized Excelsior to foreclose on the Debtor's home if he were to default on the Loan. (Pl.'s Statement of Material Facts (“SMF”) Ex. A [Doc. 11 at 6–10] ). Under the terms of the Agreement, the Debtor was to repay the Loan in full on or before September 30, 2012. (Tyler Aff. [Doc. 11 at 15] ). Unable to do so, the Debtor defaulted as of that date. Id. Excelsior quickly moved to foreclose on the Debtor's home, selling it at a foreclosure sale just over a month later, on November 6, 2012. Id. Purportedly on behalf of Excelsior Property Holdings, LLC and representing himself as its Manager, Bruce Banks executed a Deed Under Power dated November 6, 2012 (the day of the foreclosure sale). (Smith Aff. Ex. 2 [Doc. 16–2 at 9–10] ).

The parties dispute what entity in fact bought Debtor's home at this foreclosure sale. According to the Defendants,1 BSD Resources, LLC (BSD) purchased the home. (Smith Aff. ¶ 3 [Doc. 16–2 at 2] ). According to Ian Smith (who appears to be the principal of BSD), he announced the highest bid of $15,500.00 at the foreclosure sale on behalf of BSD. (Smith Aff. ¶ 3 [Doc. 16–2 at 2] ). According to the Debtor, Casa De Belli Enterprises, L.L.C. (Casa) attempted to purchase his home, despite not being formed as a legal entity until after the foreclosure sale. (Pl.'s SMF ¶ 16 [Doc. 11 at 2] ). Ian Smith is the registered agent for both BSD and Casa. (Smith Aff. ¶ 4, 6 [Doc. 16–2 at 2] ).

The Deed Under Power is itself internally contradictory regarding which entity bought the property, appearing to list both BSD and Casa as grantees. It states that Excelsior “does hereby bargain, sell and convey unto CASA DE BELLI ENTERPRISES, LLC, the following property ... TO HAVE AND TO HOLD the said described property unto the said BSD RESOURCES, LLC in FEE SIMPLE.” (Smith Aff. Ex. 2 [Doc. 16–2 at 9–10] ). Smith asserts that the reason for this discrepancy is that Banks had sent him an earlier draft of the Deed Under Power that referenced only BSD; 2 that he formed Casa on November 11, 2012 and decided to put title in Casa's name; that he received the Deed Under Power from Banks—purportedly in Casa's name—after that date; 3 and that the reference to BSD was simply an error remaining from when the Deed Under Power was revised from BSD to Casa. (Smith Aff. ¶ 5–9 [Doc. 16–2 at 2–3] ).

On November 24, 2012, the Debtor filed a petition for protection under Chapter 13 of the Bankruptcy Code. A few weeks later, he filed a Complaint commencing this adversary proceeding, which seeks to avoid the foreclosure sale as a fraudulent transfer under 11 U.S.C. § 548. In his Complaint, the Debtor argues that this transaction can and should be avoided because (1) neither Excelsior nor Casa were legal entities in existence at the time the foreclosure sale was consummated, and (2) the transfer was for less than reasonably equivalent value.

The Defendants admit that Excelsior was not legally formed under the laws of Georgia at any time relevant to this proceeding.According to the Defendants, Banks conducted business in Excelsior's name even though he never actually formed it as an LLC. (Def.'s Countercl. ¶ 3). In addition to their timely-filed Answer, the Defendants asserted a “Counterclaim for Reformation,” in which they implore the Court to reform the Security Deed (but not the Deed Under Power to change “Excelsior Property Holdings, LLC to Bruce Banks d/b/a Excelsior Property Holdings, LLC). (Def.'s Countercl. ¶ 9). They assert that the Security Deed is contrary to the intent of the parties by mutual mistake and due to a scrivener's error. (Def.'s Countercl. ¶ 6–7). The Debtor denies that there was any mutual mistake or scrivener's error. (Pl.'s Resp. to Countercl. ¶ 4–5).

Also, the Defendants admit that Casa was not a legally formed entity at the time of the foreclosure sale. Casa was not legally organized until November 11, 2012—five days after the foreclosure sale. (Answer ¶ 17). On the other hand, BSD was formed about a year and a half before the foreclosure sale. (Smith Aff. ¶ 4).

As for the value of the Debtor's home, the parties disagree by a wide margin. In support of his motion for summary judgment, the Debtor has submitted a Cobb County property tax bill indicating that, as of October 2012, the county assessed his home's fair market value at $182,540.00, an amount many times greater than the $15,500.00 paid at the foreclosure sale. (Pl.'s SMF Ex. B [Doc. 11 at 12] ). In his affidavit, the Debtor attests that the only other debts secured by his home (beside that owed to Excelsior) were about $4,000.00 of property taxes and $574.00 of homeowner's association fees. (Tyler Aff. [Doc. 11 at 15] ). On the other hand, the Defendants assert that the Debtor's home was also encumbered by a debt owed to the Cobb Community Development Program in the amount of $53,420.00 and another unspecified loan of approximately $9,000.00. (Smith Aff. ¶ 14 [Doc. 16–2 at 4] ). According to Smith, the Debtor's home also needed about $25,000.00 worth of repairs in order to bring it to a marketable state. (Smith Aff. ¶ 15 [Doc. 16–2 at 4] ). In sum, Smith asserts that his total investment in purchasing Debtor's home, repairing it, and paying off outstanding loans amounted to about $106,920.00. (Smith Aff. ¶ 16 [Doc. 16–2 at 4–5] ). The Defendants have not yet offered any evidence regarding the fair market value of Debtor's home, but object to the evidence the Debtor has offered.4

Before proceeding to the merits of the Debtor's Motion for Summary Judgment, the Court must address three threshold issues: (1) Banks' objection to improper service, (2) the Defendants' argument that this Court lacks subject matter jurisdiction to decide this adversary proceeding pursuant to Stern v. Marshall, and (3) the Defendants' argument that the Debtor lacks standing under 11 U.S.C. § 548 to bring this fraudulent transfer adversary proceeding.

Objection to Improper Service on Banks

The Defendants object that service upon Bruce Banks d/b/a/ Excelsior Property Holdings LLC was insufficient. (Answer [Doc. 4] at 5). Federal Rule of Bankruptcy Procedure 7004(b)(1) provides that an individual may be served by first class U.S. mail at the individual's residence or regular place of business. Fed. R. Bankr.P. 7004(b)(1). This rule does not authorize service to a post office box, however. The Debtor issued a summons on Bruce Banks, addressed to a post office box. [Doc. 2]. Thus service was improper.

Under the Federal Rules of Bankruptcy Procedure, if a defendant is not served within 120 days after the complaint is filed, the court “must dismiss the action without prejudice against that defendant or order that service be made within a specified time. Fed. R. Bankr.P. 7004(m) (emphasis added). The court may, at its discretion, direct that service be made within a specified time, even where the plaintiff has not shown good cause for the defective service. Henderson v. United States, 517 U.S. 654, 662, 116 S.Ct. 1638, 134 L.Ed.2d 880 (1996).

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