West v. Lee (In re Anderson)
| Decision Date | 14 January 2014 |
| Docket Number | Adversary Proceeding No. 12-2348,Bankruptcy Number: 10-31252 |
| Parties | In re: KENNETH R. ANDERSON, Debtor. DAVID C. WEST, as Chapter 7 Trustee, Plaintiff, v. DWENDON M. LEE, as Trustee of the Dwendon M. Lee and Annette A. Lee Family Trust; ANNETTE A. LEE, as Trustee of the Dwendon M. Lee and Annette A. Lee Family Trust; JOHN J. LOWNEY, as Trustee of the Lowney Family Trust; and BEATRICE M. LOWNEY, as Trustee of the Lowney Family Trust, Defendants. |
| Court | U.S. Bankruptcy Court — District of Utah |
MEMORANDUM DECISION
This case involves an analysis of Utah water law. Here, the Chapter 7 Trustee asserts claims to certain interests in water as do creditors the Dwendon M. Lee and Annette A. Lee Family Trust and the Lowney Family Trust (collectively, the "Lee and Lowney Trusts"). Without making a determination of the value of these interests in water, the Court perceives, through the pleadings and argument, that the interests in water have significant value. The Court is called upon to interpret legislation and case law and the acts of Kenneth R. Anderson (the "Debtor") in determining who has the better argument.
During the course of the last quarter-century, the Utah Court of Appeals, the Utah Supreme Court, and the Utah Legislature have issued either decisions or legislation rendering some law relating to interests in water a bit murky. This Court must determine the effect of legislative amendments on the proper method to perfect a security interest in water shares under Utah law, an issue of first impression for this Court. Complicating the issues in this case is the fact that the Debtor attempted some estate planning in the creation of a trust. Accordingly, a review of the intent of the Debtor as settlor is required.
The matters now before the Court are the Plaintiff's and Defendants' cross motions for summary judgment. The central dispute between the parties is whether 30.92 shares in the Hurricane Canal Company and 8 share equivalents under a water delivery contract issued by the City of LaVerkin, located in southern Utah, on March 19, 2007 (the "Water Shares and Contracts") belong to the Debtor's bankruptcy estate or whether the Defendants have a security interest in the Water Shares and Contracts that supercedes that of the Chapter 7 Trustee under 11 U.S.C. § 544(a). To resolve this dispute, the Court must determine whether the Debtor transferred—or was required to transfer—the Water Shares and Contracts to a trust and, if so, whether the Defendants properly perfected their security interests in the Water Shares and Contracts.
The Court conducted a hearing on the cross motions, at which hearing Patrick E. Johnson appeared on behalf of David C. West, the Chapter 7 Trustee and Plaintiff, and Chris L. Schmutz appeared on behalf of the Defendants, the Lee and Lowney Trusts. The Court then took the matter under advisement. After carefully considering the parties' briefs and memoranda, statutory authority, and case law, and after conducting its own independent research of the applicable law, the Court hereby issues the following Memorandum Decision, which constitutes the Court's findings of fact and conclusions of law under Federal Rule of Civil Procedure 52, made applicable to this proceeding by Federal Rules of Bankruptcy Procedure 9014 and 7052.
The Court has jurisdiction over this matter under 28 U.S.C. §§ 1334(b) and 157. This adversary proceeding is a core proceeding under 28 U.S.C. § 157(b)(2)(K). Venue is appropriate under 28 U.S.C. § 1409, and notice of the hearing on the motions for summary judgment was properly given in all respects.
The Debtor created the Roderick Family Trust (the "Trust") on January 30, 2007. He funded the Trust with two bank accounts and real property located in California and real property located at 825 N. 800 E., Hurricane, UT 84737. In particular, the Debtor quitclaimed various parcels of land constituting the Pah Tempe Hot Springs to the Trust on December 6, 2007, and the deeds evidencing those transfers were recorded with the Washington County Recorder the following day on December 7, 2007.1
The following year, the Debtor borrowed money from the Lee and Lowney Trusts. In his capacity as Trustee of the Trust and in his individual capacity as guarantor, the Debtor executed three promissory notes dated February 5, 2008, March 6, 2008, and May 6, 2008.2 The first two notes were made in the amount of $300,000 apiece, while the third note was made in the amount of $404,000, for a total indebtedness of $1,004,000.3
Each of the promissory notes was secured by a deed of trust of even date. The copies of the trust deeds dated February 5 and March 6, 2008 show that they were recorded with the Washington County Recorder, but the copy of the trust deed dated May 6, 2008 does not have a stamp from a recorder's office. The trust deeds purport to offer as security for the loans certain parcels of land constituting the Pah Tempe Hot Springs as well as "30.92 Shares in the Hurricane Canal Company" and "Eight (8) Share Equivalents under that certain Water Delivery Contract issued by the City of LaVerkin, Utah, dated March 19, 2007."4
On February 5, 2008, the Lee and Lowney Trusts and the Debtor5 executed a Memorandum of Understanding and Agreement, which provided, inter alia, that "[t]he following water rights and/or shares are to be included on the Trust Deed as part of the secured property: 30.72 shares in the Hurricane Canal Company; and 8 Share Equivalents under that certain Water Delivery Contractissued by the City of LaVerkin, Utah, dated March 19, 2007."6 The Court is not aware of an explanation for the fractional difference in Hurricane Canal Company shares between the trust deeds and the Memorandum of Understanding and Agreement. The Defendants argue that the Memorandum of Understanding and Agreement, although executed at the time of the first loan, applied to each of the three loans at issue in this case.7
In connection with the loans, the Lee and Lowney Trusts and the Debtor—again in his capacity as Trustee of the Trust and in his individual capacity—executed three Title Company Instructions,8 each of which authorized Southern Utah Title Company:
[T]o prepare a Trust Deed and Trust Deed Note with the following terms:
A few months later, the Debtor became delinquent on the promissory notes, and on October 28, 2008, the parties executed a Trust Deed Note Modification Agreement for each of the threenotes, which changed some of the notes' repayment terms.10 In particular, the notes all became due in full on November 1, 2009.11 When the notes were not paid by that date, the Lee and Lowney Trusts began to foreclose on the trust deeds and scheduled a trustee's sale for June 11, 2010.12 The Debtor filed his petition for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Eastern District of California on June 10, 2010.
On August 13, 2010, Judge Thomas C. Holman, who had been presiding over the Debtor's case in the Eastern District of California, ordered that the Debtor's bankruptcy case and all related adversary proceedings be transferred to the United States Bankruptcy Court for the District of Utah.13 The Defendants subsequently filed a motion to convert or dismiss the Debtor's case, in which two other parties joined. The Court conducted a hearing on the motion on August 25, 2011, and converted the Debtor's case to one under Chapter 7, entering an order to that effect on September 2, 2011.14 David West was subsequently appointed as Chapter 7 Trustee, who filed the instant adversary proceeding on August 29, 2012, seeking to have the Water Shares and Contracts declared property of the estate.
Under Federal Rule of Civil Procedure 56(a), made applicable to adversary proceedings by Federal Rule of Bankruptcy Procedure 7056, the Court is required to grant a motion for summary judgment "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."15 Substantive law determines which facts are material and which are not. "Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment."16 Whether a dispute is "genuine" turns on whether "the evidence is such that a reasonable [factfinder] could return a verdict for the nonmoving party."17 In sum, the Court's function at the summary judgment stage is to "determine whether there is a genuine issue for trial."18
The moving party bears the burden to show that it is entitled to summary judgment,19 including the burden to properly support its summary judgment motion as required by Rule 56(c).20 Once the moving party meets its initial burden, "the burden shifts to the nonmoving party to demonstrate a genuine issue for trial on a material matter."21 The nonmoving party may not rely solely on allegations in the pleadings, but must instead show "specific facts showing that there is a genuine issue for trial."22
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