Williams v. Marlar

• Decision Date: 11 April 2001
• Docket Number: No. 00-3431,00-3431
• Citation: 267 F.3d 749
• Parties: (8th Cir. 2001) IN RE: JOHN SAMUEL MARLAR, DEBTOR. RENEE S. WILLIAMS, TRUSTEE APPELLEE, v. JOHN SAMUEL MARLAR, APPELLANT. Submitted:
• Court: U.S. Court of Appeals — Eighth Circuit

Page 749

267 F.3d 749 (8th Cir. 2001)

IN RE: JOHN SAMUEL MARLAR, DEBTOR RENEE S. WILLIAMS, TRUSTEE APPELLEE, v. JOHN SAMUEL MARLAR, APPELLANT.

No. 00-3431

UNITED STATES COURT OF APPEALS FOR THE EIGHTH CIRCUIT

Submitted: April 11, 2001

Filed: October 2, 2001

Appeal from the United States Bankruptcy Appellate Panel for the Eighth Circuit. [Copyrighted Material Omitted]

[Copyrighted Material Omitted] Before McMILLIAN, Loken, and Hansen, Circuit Judges.

Loken, Circuit Judge

On December 19, 1986, two days before his marriage to Paula Davis, John S. Marlar conveyed his interest in 712 acres of Arkansas farmland to his son Bradley for ten dollars with love and admiration. Bradley recorded the deed in mid-1995, during Marlar's contested divorce proceedings. In the subsequent divorce decree, Davis was awarded a $52,000 judgment secured by an equitable lien on any interest Marlar might have in the farmland. In June 1998, an Arkansas state court rejected Davis's suit to set aside the 1986 transfer to Bradley under the Arkansas Fraudulent Transfer Act, concluding that there was no evidence Marlar transferred the property with actual intent to defraud creditors, and that Davis's claim of constructive fraud failed because she had actual notice of the transfer prior to their marriage.

Less than a month after the state court judgment, Davis and two other creditors filed an involuntary petition against Marlar for relief under Chapter 7 of the Bankruptcy Code. The trustee in bankruptcy, represented by the same attorney who represented Davis in her unsuccessful state court action, then filed an adversary complaint to set aside the 1986 conveyance, seeking to bring the farmland into Marlar's bankruptcy estate and make it available to satisfy the claims of all creditors, including Davis. The bankruptcy court granted summary judgment in favor of the trustee, concluding that the date the deed was recorded by Bradley was the effective date of the transfer as to unsecured creditors who lacked prior notice, and that the transfer was made without adequate consideration and rendered Marlar insolvent. See In re Marlar, 246 B.R. 606 and 248 B.R. 577 (Bankr. W.D. Ark. 2000). The Eighth Circuit Bankruptcy Appellate Panel affirmed, 252 B.R. 743, 749 (B.A.P. 8th Cir. 2000). Marlar appeals,¹ arguing that principles of res judicata and collateral estoppel bar the trustee from relitigating the fraudulent transfer claim, and that summary judgment was inappropriate because there are disputed issues of material fact. We affirm, but we direct that creditor Davis's bankruptcy claim may not be satisfied from this portion of Marlar's bankruptcy estate.

I. Res Judicata Issues.

The bankruptcy trustee's avoidance powers include 11 U.S.C. § 544(b)(1), which provides that "the trustee may avoid any transfer of an interest of the debtor in property... that is voidable under applicable law by a creditor holding an unsecured claim." To avoid the transfer from Marlar to his son, the trustee relies on the Arkansas Fraudulent Transfer Act, the same statute invoked by creditor Davis in her state court action. To exercise her § 544(b)(1) avoidance power, the trustee must show that the transfer is voidable under state law by at least one unsecured creditor of the bankruptcy estate with an allowable claim. See In re Wingspread Corp., 178 B.R. 938, 945 (Bankr. S.D.N.Y. 1995). In this case, the trustee relies on three unsecured creditors in challenging the transfer from Marlar to his son: Marlar's ex-wife, Paula Davis; Farm Credit Services, an agricultural lender that financed cattle purchases in the early 1990's; and attorney Sandra Bradshaw, who represented Marlar during much of the divorce proceedings.

Marlar relies on the state court judgment in his favor in arguing that the trustee's Fraudulent Transfer Act claim is barred by res judicata and collateral estoppel. Because the trustee is invoking state law, we look to the Arkansas law of claim and issue preclusion:

Under the doctrine of res judicata or claim preclusion, a valid and final judgment rendered on the merits by a court of competent jurisdiction bars another action by the plaintiff or his privies against the defendant or his privies on the same claim or cause of action.... Collateral estoppel or issue preclusion bars the relitigation of issues of law or fact actually litigated by the parties in the first suit.

Robinson v. Buie, 817 S.W.2d 431, 432-33 (Ark. 1991). Res judicata would clearly bar creditor Davis from again challenging the transfer under the Fraudulent Transfer Act. Her claim was adjudicated on the merits in state court. She has no right to relitigate the state court's determination that, as to her, the effective date of the transfer from Marlar to Bradley was in 1986. Thus, the transfer is not, in the words of § 544(b)(1), "voidable under applicable law" by creditor Davis, and the trustee has no avoidance power based upon Davis's rights under Arkansas law.

However, the trustee argues, and the bankruptcy courts agreed, that § 544(b)(1) permits the trustee to avoid the transfer by invoking the rights of unsecured creditors Farm Credit Services and Sandra Bradshaw under Arkansas law. Stressing the fact that the attorney who represented Davis in the state court action represents the trustee in this adversary action, Marlar broadly asserts that the trustee is in privity with Davis and therefore lacks standing to attack the transfer as fraudulent. However, the trustee represents all unsecured creditors of the bankruptcy estate. See In re Fordu, 201 F.3d 693, 705 (6th Cir. 1999). The plain language of § 544(b)(1) permits the trustee to avoid the transfer if any unsecured creditor has the right to do so under state law. Thus, the fact that the transfer is not voidable by creditor Davis does not bar the trustee from relying on the rights of other unsecured creditors.

Marlar next argues that the trustee's § 544(b)(1) claim must fail because creditors Bradshaw and Farm Credit Services were themselves in privity with Davis and therefore are barred from relitigating the fraudulent transfer claim. Again, we disagree. "Privity of parties within the meaning of res judicata means a person so identified in interest with another that he represents the same legal right." Robinson, 817 S.W.2d at 432. "[P]rivity denotes mutual or successive relationship to the same right of property." Curry v. Hanna, 307 S.W.2d 77, 79 (Ark. 1957). Although the three creditors may now share a common interest in setting aside the transfer, the unsecured claims of Bradshaw and Farm Credit Services derive from completely different transactions. They had no interest in the divorce proceedings that gave rise to Davis's claim, and the reason Davis lost her state court action -- her prior notice of the transfer to Bradley in 1986 -- does not apply to subsequent creditors such as Bradshaw and Farm Credit Services. Marlar's privity argument is without merit.

Marlar further argues that collateral estoppel bars creditors Bradshaw and Farm Credit Services from relitigating issues decided in creditor Davis's state court action. This contention has prompted the parties to debate whether collateral estoppel under Arkansas law is limited to parties in privity. But we need not decide that issue. Collateral estoppel only bars the relitigation of issues actually litigated in the prior suit. The state court determined that the transfer was effective as between Marlar and Bradley in 1986 and was not voidable by a creditor with prior actual notice, Paula Davis. The court did not consider whether the transfer might be voidable by a subsequent creditor of Marlar because Bradley did not record the deed until 1995. Accordingly, the trustee's assertion of that claim based upon the rights of creditors Bradshaw and Farm Credit Services is not barred by collateral estoppel.

II. Whether Summary Judgment Was Appropriate.

Marlar argues that the bankruptcy court erred in granting summary judgment declaring the transfer to Bradley constructively fraudulent and ordering that the farmland be included in Marlar's bankruptcy estate. Like the Bankruptcy Appellate Panel, we review the grant of summary judgment de novo, viewing the facts in the light most favorable to the nonmoving party. See In re Hen House Interstate, Inc., 177 F.3d 719, 721 (8th Cir. 1999) (en banc), aff'd sub nom. Hartford Underwriters Ins. v. Union Planters Bank, 530 U.S. 1 (2000); In re Cochrane, 124 F.3d 978, 981 (8th Cir. 1997).

Marlar first argues that under Arkansas law the effective date of a transfer of real estate is the date the deed was transferred, not the date the deed was recorded. In support, Marlar cites cases adjudicating when a transfer was effective as between the grantor and grantee, such as Barker v. Nelson, 812 S.W.2d 477, 479 (Ark. 1991). Here, on the other hand, the question is whether the transfer is voidable by the grantor's creditors under the Fraudulent ...