West v. Christensen (In re Christensen)

• Decision Date: 04 November 2016
• Docket Number: Adversary Proceeding No. 13–02248,Bankruptcy Number: 11–30743
• Citation: 561 B.R. 218
• Parties: In re: Louis R. Christensen, Debtor. David C. West, Chapter 7 Trustee, Plaintiff, v. Marlese Christensen, Defendant.
• Court: U.S. Bankruptcy Court — District of Utah

561 B.R. 218

In re: Louis R. Christensen, Debtor.David C. West, Chapter 7 Trustee, Plaintiff,

v.Marlese Christensen, Defendant.

Bankruptcy Number: 11–30743

Adversary Proceeding No. 13–02248

United States Bankruptcy Court, D. Utah.

Signed November 4, 2016

Filed November 07, 2016

Reid W. Lambert, David A. Nill, David R. Williams, Woodbury & Kesler, Salt Lake City, UT, for Plaintiff.

Brent D. Wride, Ray Quinney & Nebeker, Salt Lake City, UT, for Defendant.

MEMORANDUM DECISION

WILLIAM T. THURMAN, U.S. Bankruptcy Judge

I. INTRODUCTION

This matter comes before the Court on the Trustee's motion for summary judgment and the Defendant's cross-motion for summary judgment. Louis Christensen ("Debtor") filed for chapter 7 bankruptcy on July 22, 2011. The Trustee filed a complaint on July 11, 2013 against Defendant Marlese Christensen ("Defendant"), the Debtor's former wife, to recover an alleged fraudulent transfer or a preferential transfer in the amount of $120,000.

A hearing on the second motion for summary judgment was conducted on May 5, 2016. At that hearing, the Court questioned the impact of the divorce court's division of marital property on this proceeding and requested the parties to brief how the Rooker–Feldman doctrine or res judicata may affect this Court's ruling. The parties submitted briefs, and the Court deems further oral argument to be unnecessary. After considering the arguments of counsel, and conducting an independent review of the law, the Court makes the following findings of fact and conclusions of law.

II. JURISDICTION AND VENUE

The jurisdiction of this Court is properly invoked under 28 U.S.C. § 1334. This is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2)(F) and (H) and this Court may enter a final order. Venue is proper under the provisions of 28 U.S.C. § 1408 and 1409.

III. RELEVANT FACTS

Debtor and Defendant were married. It was a second marriage for both of them, and they came into the marriage owning separate property that would remain separate according to a prenuptial agreement. In March 2010, while married, they purchased a home on Bonita Bay Drive in St. George from the Debtor's secretary that they used as a marital residence (the "Bonita Bay Property"). They purchased the property together with a down payment in excess of $40,000.

The Debtor and the Defendant put another $40,000 into the home for landscaping and remodeling in the nine or ten months that they owned it. The Defendant received regular income from a charitable remainder trust established by her parents, which she used to pay household expenses, to help pay rent and mortgage payments, and for the upkeep of the home. The Defendant also earned money doing makeup and facials for clients, which she contributed to the household. The Debtor could not make a substantial contribution to the household because he was struggling with health issues. The Debtor's dental license was suspended on April 26, 2010, only eight weeks after they purchased the home, which further reduced his ability to pay any expenses for the home.

The Debtor acquired title to the Bonita Bay Property from his secretary on March 1, 2010. A few weeks after the purchase, the Debtor gave the Defendant signature pages to sign that he untruthfully said would put her on the title to the Bonita Bay Property. One of the papers the Defendant signed was actually a Quit Claim Deed granting the Debtor an ownership interest in a home in Weber County that belonged solely to the Defendant under the prenuptial agreement. The other paper was a Deed of Trust that allowed the Debtor to get a line of credit from Bank of the West for up to $120,000, using the Defendant's Weber County home as collateral. The Debtor had the signatures notarized later, when the Defendant was not present.

When the Defendant learned of this loan about six months later, she contacted a lawyer for assistance. In response, on November 3, 2010, the Debtor told the Defendant to move out. On December 6, 2010, the Debtor filed for divorce and put the Bonita Bay Property up for sale. It was at this point that the Defendant discovered that she was not on the title to the home. The Defendant's divorce attorney recorded a Notice of Interest against the Bonita Bay Property to let any purchaser know that she claimed an interest in it "by virtue of [her] marital interest in said home and real property."

The Bonita Bay Property sold in January 2011 for $290,000. The proceeds of the sale were paid to Terra Title Company, and the funds went into its bank account. On January 26, 2011, the Defendant signed a release of her Notice of Interest in the Bonita Bay Property, which enabled the Debtor to receive a partial share of the proceeds from the sale of the Bonita Bay Property. On January 27, 2011, Terra Title Company issued a check to the Defendant for $120,000, which she used to pay off the Debtor's loan with Bank of the West that encumbered her home in Weber County. The payoff amount was $109,381.05.

The Debtor filed a chapter 7 bankruptcy petition on July 22, 2011, about six months after the sale of the Bonita Bay Property.

IV. PROCEDURAL HISTORY

The Trustee filed a complaint on July 11, 2013 against the Defendant seeking to recover the $120,000 paid to her after the sale of the Bonita Bay Property as an alleged fraudulent transfer under 11 U.S.C. § 548(a)(1)(A) and (B), as well as under 11 U.S.C. § 544¹ and Utah Code Ann. § 25–6–5 and 6. The Trustee sought to avoid the same transaction as a preferential transfer under § 547, and to recover the payment from the Defendant under § 550.

The Defendant's first motion for summary judgment was denied because there were genuine issues of material fact in dispute. After fact discovery closed, Defendant filed a second motion for summary judgment. The motion for summary judgment was granted in part on all claims involving fraud, and the Trustee's claims for relief under § 548 were dismissed. Summary judgment was denied as to the claims based on allegations of a preferential transfer under § 547.

The Defendant requested relief from the automatic stay to allow her and the Debtor to return to the divorce court and litigate the division of their marital property and the Defendant's interest in the $120,000 that was transferred to her. The Trustee expressed an intent to participate in that litigation, though he later decided not to participate in the divorce court action. Relief from stay was granted on August 11, 2015.

On January 8, 2016, the divorce court awarded each party one-half of the marital assets, and this decision was further memorialized in the Findings of Fact, Conclusions of Law, and Final Judgment entered on August 11, 2016 (the "Divorce Court Property Division"). When this was reported to the bankruptcy court, the Defendant suggested that the Divorce Court Property Division disposed of the matter, but the Trustee still questioned whether or not the Defendant had an ownership interest in the money transferred to her as a result of the sale of the Bonita Bay Property. The Trustee filed a third motion for summary judgment, and this is the matter currently before the Court as well as the Defendant's cross motion.

At this point in the adversary proceeding, the threshold issue for deciding the Trustee's remaining preferential transfer claim is whether or not the $120,000 transferred to the Defendant belonged to the Defendant or the Debtor. A trustee may only avoid a "transfer of an interest of the debtor in property."² If the proceeds from the sale of the Bonita Bay Property were solely the Debtor's property, then there is a possibility that a preferential transfer took place. However, if the Defendant received a return of her own property when she received the $120,000 payment, then the threshold would not be met and the transfer would not be considered a preference under § 547. There are no material facts in dispute, and so summary judgment is appropriate.

V. DISCUSSION

"For the purposes of most bankruptcy proceedings, property interests are created and defined by state law. Once that state law determination is made, however, [the Court] must still look to federal bankruptcy law to resolve the extent to which that interest is property of the estate."³ As stated in the Relevant Facts, the Debtor filed for divorce in December 2010. At that point, the Bonita Bay Property had not yet been sold, and its ownership and division was within the jurisdiction of the divorce court. The divorce was not yet finalized when the Debtor filed a bankruptcy petition in July 2011, which stayed the divorce court's decision about property division. The automatic stay does not halt a divorce proceeding "except to the extent that such proceeding seeks to determine the division of property that is property of the estate."⁴ The divorce court postponed its division of property by entering an Order Bifurcating Divorce on April 11, 2013, which reserved issues regarding property division due to the pending bankruptcy case.

On the date the bankruptcy petition was filed, the bankruptcy estate received the "legal or equitable interests of the debtor in property."⁵ While this Court has jurisdiction over property of the bankruptcy estate, the determination of a Debtor's ownership interest in property may be made by another court. And that is the approach this Court decided to take when it lifted the automatic stay and sent the parties back to the divorce court to litigate the division of the marital assets. The divorce court awarded each spouse the property he or she brought into the marriage, and then equally divided the marital property. After balancing the value of the property, the divorce court awarded Defendant $148,066.88 from the proceeds of the sale of the Bonita Bay Property.

The Trustee asks this Court to rule that the award of sale proceeds under the divorce decree is an avoidable preference, arguing that the Defendant did not own the asset that was sold, and so her right to a share of the property...