Wagner v. Eberhard (In re Vaughan Co.)
| Decision Date | 23 January 2014 |
| Docket Number | Case No. 10-10759,Adv. No. 11-1226 |
| Court | U.S. Bankruptcy Court — District of New Mexico |
| Parties | In re: VAUGHAN COMPANY, REALTORS, Debtor. JUDITH A. WAGNER, Chapter 11 Trustee Of the bankruptcy estate of the Vaughan Company, Realtors, Plaintiff, v. KENNETH J. EBERHARD, et al Defendants. |
THIS MATTER is before the Court on the Motion for Partial Summary Judgment as the Timing and Amount of Transfers (the "Motion") filed by the Plaintiff. See Docket No. 45. Judith Wagner, Chapter 11 Trustee of the bankruptcy estate of the Vaughan Company Realtors (the "Trustee") seeks judgment in her favor on her claims under 11 U.S.C. § 548 and New Mexico's version of the Uniform Fraudulent Transfer Act ("UFTA"), N.M.S.A. 1978 §§ 56-10-18(A)(1) and (2). After consideration of the Motion, Kenneth Eberhard's response, and the supporting papers, and being otherwise sufficiently informed, the Court finds the Motion should be granted, in part, and denied, in part, as described below.
Summary judgment, governed by Rule 56, Fed.R.Civ.P., will be granted when the movant demonstrates that there is no genuine dispute as to a material fact and that the movant is entitled to judgment as a matter of law. See Fed.R.Civ.P. 56(a), made applicable to adversaryproceedings by Rule 7056, Fed.R.Bankr.P. "[A] party seeking summary judgment always bears the initial responsibility of informing the ... court of the basis for its motion, and ... [must] demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). In considering a motion for summary judgment, the Court must "examine the factual record and reasonable inferences therefrom in the light most favorable to the party opposing summary judgment." Wolf v. Prudential Ins. Co. of America, 50 F.3d 793, 796 (10th Cir. 1995) (quoting Applied Genetics Int'l, Inc. v. First Affiliated Sec., Inc., 912 F2d 1238, 1241 (10th Cir. 1990)). "[A] party opposing a properly supported motion for summary judgment may not rest on mere allegation or denials of his pleading, but must set forth specific facts showing that there is a genuine issue for trial" through affidavits or other supporting evidence. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256, 106 S.Ct. 2505, 91 L.Ed .2d 202 (1986).
1. Kenneth Eberhard invested a total of $445,500 in Vaughan Company Realtors' ("VCR") promissory note program. See Trustee's Motion, ¶ 2; Kenneth Eberhard's Answer to Trustee's Request for Admissions, attached to the Trustee's Motion as Exhibit A ("Eberhard's Discovery Responses"), p. 1 of 2; Kenneth Eberhard's Response to Motion for Summary Judgment on Timing and Amount of Transfers ("Eberhard's Response"), ¶ 2.
2. From 2000 through February 22, 2010, VCR transferred $726,267.79 to Dr. Eberhard through his self-directed individual retirement account ("IRA"). See Trustee's Motion, ¶ 3; Kenneth Eberhard's Supplemental Responses to Trustee's Request for Admissions, attachedto the Trustee's Motion as Exhibit B ("Eberhard's Supplemental Discovery Responses"), p. 6 of 10.1
3. From February 22, 2006 through February 22, 2010, VCR transferred $369,469.29 to Dr. Eberhard through his IRA. See Trustee's Motion, ¶ 4; Eberhard's Supplemental Discovery Responses, p. 6 of 10.
4. From February 22, 2008 through February 22, 2010, VCR transferred $177,902.30 to Dr. Eberhard through his IRA. See Trustee's Motion, ¶ 5; Eberhard's Supplemental Discovery Responses, p. 6 of 10.
5. VCR transferred a total of $280,767.79 more to Dr. Eberhard than he paid to VCR. See Trustee's Motion, ¶ 6; Undisputed facts No. 1 and 2.
6. Between 2003 and 2010, Dr. Eberhard received the following distributions from his IRA:
2003
$30,000
2004
$80,000
2005
$55,000
2006
$60,000
2007
$80,000
2008
$80,000
2009
$90,000
2010
See Eberhard's Response, ¶ 4; IRS Forms 1099 (2003-2010), attached as Exhibit A to Eberhard's Response.
7. VCR filed a voluntary petition under Chapter 11 of the Bankruptcy Code on February 22, 2010 (the "Petition Date"). See Docket No. 1 in Case No. 10-10759.
8. The Trustee commenced the above-captioned adversary proceeding on December 16, 2011. See Trustee's Complaint, Docket No. 1 in Adv. No. 11-1226.
The Trustee seeks to establish the requisite elements of her actual and constructive fraud claims against Dr. Eberhard under 11 U.S.C. § 548 and N.M.S.A. 1978 § 56-10-18(A). Claims for actual fraud require a showing of: "(1) a transfer of an interest of the debtor in property; (2) made within two [or four] years before the debtor filed for bankruptcy; and (3) done with actual intent to hinder, delay, or defraud the debtor or any entity the debtor would become after the transfer." See In re The 1031 Tax Group, LLC, 439 B.R. 47, 68 (S.D.N.Y.Bankr.2010) (quoting 11 U.S.C. § 548(a)(1)(A)).2 Claims for constructive fraud generally require a showing that the debtor: (1) transferred property within two or four years before the bankruptcy filing; (2) received less than reasonably equivalent value for the transfer; and (3) was insolvent (or some equivalent) at the time of the transfer. See generally 11 U.S.C. § 548(a)(1)(B); N.M.S.A. 1978 §§ 56-10-18(A)(1)(2), 56-10-19.
The Court previously found that, to extent a transfer was made to Dr. Eberhard within four years before the Petition Date: (1) each transfer constituted an interest of VCR in property; (2) each transfer was made with the actual intent to defraud creditors; (3) VCR received less thanreasonably equivalent value in exchange for the transfer of any returns in excess of Dr. Eberhard's original investment; (4) on the date of each transfer, VCR was insolvent and/or believed (or reasonably should have believed) it would incur debts beyond its ability to repay. See Wagner v. Oliva, et al, 500 B.R. 778 (Bankr.D.N.M. 2013). The only remaining issue with respect to the Trustee's prima facie case against Dr. Eberhard is whether, and to what extent, the transfers to Dr. Eberhard actually occurred.
Here, the facts not subject to genuine dispute establish that Dr. Eberhard, through his IRA, received $177,902.30 from VCR within two years before the Petition Date and $369,469.29 from VCR within four years before the Petition Date. The Trustee has also established that Dr. Eberhard, through his IRA, received $280,767.79 more from VCR than he invested.
Although Dr. Eberhard does not specifically dispute the numbers proffered by the Trustee, he argues that her calculations are incorrect. First, he contends that because the funds were transferred to his IRA and not to him personally, he is only liable to the extent he received distributions from his IRA. This argument is unavailing. A self-directed IRA, like a savings account, is not a separate legal entity from its owner. See, e.g., U.S. v. Bailey, 2012 WL 569744, *5, n.5 (W.D.N.C. 2012) (); Myers v. Walker, 61 S.W.3d 722, 726 n.1 (Tex. App. 2001) ().3 Applying this principle, a number of courts have held that, for purposes of calculating "current monthly income" as that phrase is defined in 11 U.S.C. § 101(10A), any funds deposited into a debtor's IRA are received by the debtor as income even ifthe funds have not been distributed from the IRA to the debtor. In re Zahn, 391 B.R. 840, 845 (8th Cir. BAP 2008) (); Simon v. Zittel, 2008 WL 750346, *3 (Bankr.S.D.Ill. 2008) ().4 These courts point out that funds deposited into an IRA are treated as income - for purposes of Section 101(10A) - to the account owner because the funds are "available for the [owner's] use, just as if the [owner] had deposited them into a checking or savings account." Simon, 2008 WL 750346 at *3.
Similarly, an IRA functions like a self-settled revocable trust. The assets of such trusts are owned by the debtor, and thereby become property the bankruptcy estate, for purposes of 11 U.S.C. § 541(a). See In re Kester, 339 B.R. 749 (10th Cir. BAP 2006) ().5 The owner of a self-settled revocable trust - like the owner of a self-directed IRA - can access its assets at any time.
Here, Dr. Eberhard had access to and control over the funds in his IRA from the date the funds were deposited. For fraudulent transfer purposes, even if not for income tax or exemption purposes, the transfer of funds by a third party to an individual's IRA has the same legal effect as if the funds were transferred directly to that individual.
Further, even if the Court were to assume that the transfers were made to the IRA, as a separate entity from Dr. Eberhard, the Trustee could still recover those transfers from Dr. Eberhard individually. The Bankruptcy Code and the UFTA allow for recovery from the initial transferee or from "an entity for whose benefit such transfer was made." 11 U.S.C. § 550(a)(1); N.M.S.A. 1978 § 56-10-22(B)(1). The term "entity" includes a person, and the term "person" includes an individual. 11 U.S.C. §§ 101(15), (41)....
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