Opinion
BANKRUPTCY CASE NO. 15-00090 ADVERSARY CASE NO. 16-00002
08-03-2018
In Re: MYRNA CASTRO EVANS, Debtor. MARK HEATH, CHAPTER 7 BANKRUPTCY TRUSTEE, Plaintiff, v. ROY KENNETH EVANS, Defendant.
(Chapter 7)
DECISION AND ORDER RE CROSS-MOTIONS FOR SUMMARY JUDGMENT
In this adversary proceeding, Guam's Chapter 7 Trustee ("Trustee") seeks to avoid the prepetition transfer of two properties Debtor Myrna Castro Evans ("Castro") made to Defendant Roy Kenneth Evans ("Evans"). Castro made the transfers as part of a marital settlement agreement incorporated in a final divorce decree entered by the Superior Court of Guam, approximately three months before Castro filed the bankruptcy petition underlying this proceeding. The Trustee asks for judgment as a matter of law that Castro made the transfers for inadequate consideration and that the properties may be returned to Castro's estate for the purpose of satisfying creditors. Evans opposes, contending the Trustee has failed to comply with local requirements for producing summary judgment evidence, has established no disputed issues of material fact, and is precluded from avoiding either transfer as a matter of law. The court has considered the filings of the parties and has determined oral argument is unnecessary. The Trustee's motion for summary judgment is DENIED. Evans's motion for summary judgment is GRANTED. The Trustee's motion to enlarge time is MOOT.
Background.
Castro and Evans were married for twenty-seven years. Eventually irreconcilable differences marred the marriage. They separated in March 2014 and Castro filed for divorce in Guam Superior Court in April 2014. Both were represented by counsel in the divorce proceeding, and they eventually reached a dissolution settlement agreement in early February 2015. The Superior Court approved the agreement and incorporated the agreement in a final decree of divorce in June 2015.
In the agreement, the parties memorialized various provisions concerning allocation of real and personal property, and they jointly acknowledged that sufficient consideration was given in support of the division. A marital residence, at 1190A Chalan Kota, in Dededo, was to go to Evans, as was a plant nursery that Evans and Castro apparently jointly owned in Dededo. Castro was to receive another piece of real property in Dededo, along with a parcel in Arizona. Each party was to receive assorted other personal property and interests. And each was to be responsible for certain debts.
Whether the marital residence and/or the nursery described in the settlement agreement encompass both real property parcels the Trustee seeks to retrieve for the estate here is unclear; the only real property the agreement directs explicitly to Evans is the residence. The records concerning the residence suggest it coincides with at least one of the properties Trustee seeks. --------
Approximately three months after the Superior Court entered its final decree, Castro filed a voluntary Chapter 7 bankruptcy petition in this court in late August 2015. A meeting with creditors occurred a month later, in late September. In the amended complaint giving rise to these competing summary judgment motions, the Trustee alleges that at the meeting with creditors, Castro testified Evans had pressured her into executing the settlement agreement by suggesting he would encourage local authorities to continue to prosecute a pending felony criminal case against her. The Trustee's summary judgment motion and its limited supporting documentation, however, make no further mention of that allegation, which appears to remain unsubstantiated. And as a result, it appears the Trustee no longer relies on the claim as a basis for any of his arguments in favor of relief.
Instead, he contends the division of assets under the settlement agreement was inequitable enough that the transfers made to Evans are avoidable under the Bankruptcy Code based on actual fraud or constructive fraud and avoidable for related reasons under Guam's territorial law. Evans opposes, noting the Trustee has provided no admissible evidence in support of his claims, and adding that regardless, the Superior Court's decree, entered after a regularly conducted, contested divorce proceeding, generally establishes the transfers were appropriately made and not later to be subject to the kind of attack the Trustee makes here.
Legal Standard.
Federal Rule of Civil Procedure 56(a), incorporated in this adversary proceeding by Bankruptcy Rule 7056, directs the court to "grant 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." The Ninth Circuit has explained the movant bears a "heavy burden" in making this showing. Younie v. Gonya, 211 B.R. 367, 373 (9th Cir. BAP 1997). The movant must specifically identify those portions of the record it believes establish an absence of material fact. T.W. Elec. Serv., Inc. v. Pac. Elec. Contractors Ass'n, 809 F.2d 626, 630 (9th Cir. 1987). Where that burden has been met, the opponent must affirmatively establish that some material fact remains in dispute. Frederick S. Wyle P.C. v. Texaco, Inc., 764 F.2d 604, 608 (9th Cir. 1985). But the opponent cannot assert the "mere existence of some alleged factual dispute." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). Instead, to demonstrate a genuine material factual dispute, the objector must produce affidavits based on personal knowledge and the facts set forth must be admissible in evidence. In re Aquaslide "N" Dive Corp., 85 B.R. 545, 547 (9th Cir. BAP 1987).
If, based on the evidence put forth by the parties, a rational trier of fact might resolve any disputed issue raised in favor of the nonmoving party, summary judgment is to be denied. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). Evaluating credibility, weighing evidence, and drawing inferences from the facts have no place at this stage. Oswalt v. Resolute Indus., Inc., 642 F.3d 856, 861 (9th Cir. 2011). Instead, the court's ultimate task is to determine whether specific facts set forth by the nonmoving party, viewed along with the undisputed background or contextual facts, and all justifiable inferences drawn in favor of the nonmoving party, are such that a rational or reasonable jury might return a verdict in its favor. T.W. Elec. Serv., Inc. v. Pac. Elec. Contractors Ass'n, 809 F.2d 626, 630 (9th Cir. 1987).
Discussion.
Before addressing the merits of these competing motions, the court notes, as Evans has pointed out, that the Trustee has failed to provide a concise statement of material facts essential to the court's resolution of any summary judgment motion, as required by Civil Local Rule 56.1(a). The court has "no independent duty to search and consider any part of the Court record not otherwise referenced in the separate concise statements of the parties"—the whole point of the rule is to obviate the need for the court to scour the record for facts in support of or against summary judgment. See Local Rule 56.1; see also Delange v. Dutra Const. Co., 183 F.3d 916, 919 (9th Cir. 1999). Various courts, acknowledging this underlying purpose, have concluded a party's failure to provide the requisite concise statement may excuse the court from considering anything the movant has submitted at all. See, e.g., Auld-Susott v. Galindo, 2018 WL 1719702, at *1-2 (D. Haw. Apr. 9, 2018). The Trustee's motion, in other words, may be appropriately denied on this ground alone. Id. But in the interest of securing a just and substantive resolution of the Trustee's claims, the court will address the merits here; the parties are reminded again that failure to comply with the court's rules may result in any of a number of sanctions.
Turning to the substance of the motions, the Trustee seeks, as noted, to recover two real properties transferred to Evans as a result of the settlement agreement. He contends Castro made the transfers with either "actual" or "constructive" "intent to hinder, delay or defraud" creditors within two years of filing her bankruptcy petition, which, if true, might allow him to avoid the transfers under 11 U.S.C. § 548(a)(1). The focus of the inquiry for avoidance based on an "actual" fraudulent transfer under section 548(a) is typically on the intent of the transferor, and thus here, the intent of Castro. In re Grail Semiconductor, 2017 WL 1655180, at *7 (Bankr. E.D. Cal. May 1, 2017). The transferee's intent—in other words, Evans's intent—is typically irrelevant. See, e.g., Plotkin v. Pomona Valley Imports (In re Cohen), 199 B.R. 709, 716 (9th Cir. BAP 1996). The Trustee offers no analysis of Castro's intent and no facts directly supporting an actual intent finding here, and thus whatever limited argument he makes based on direct evidence is insufficient as a matter of law.
But the Trustee did, at one point, appear to suggest Evans had problematic intent in pressuring Castro to execute the settlement agreement, and although he has offered no authority for the possibility that Evans's intent may be imputed to Castro for purposes of section 548, there is a potentially applicable exception to the general rule that the transferee's intent is irrelevant, which allows avoidance where a transferee "controls or is in a position to control the debtor/transferor's disposition of its property." Greenspan v. Orrick, Herrington & Sutcliffe LLP (In re Brobeck, Phleger & Harrison LLP), 408 B.R. 318, 339 (Bankr. N.D. Cal. 2009). As noted above, however, it appears the Trustee has abandoned his duress- or threat-based argument, as he never mentions it in his motion for summary judgment. In any event, he has offered no evidence, admissible or otherwise, substantiating the claim that Castro was pressured in settlement negotiations, and thus the court concludes this imputed-intent exception is inapplicable.
Acknowledging that direct evidence of actual fraudulent intent is rare, the Trustee has instead suggested the court should consider as indirect evidence various well-recognized statutory and equitable "badges of fraud," such as, among others, whether: (1) the transfer was made to an insider; (2) before the transfer was made, the debtor had been threatened with a lawsuit; (3) the transfer constituted substantially all the debtor's assets; (4) the value of consideration received was not reasonably equivalent to the value transferred; and (5) the debtor became insolvent shortly after the transfer was made. See, e.g., In re Tenorio, 2018 WL 989691, at *10 (B.A.P. 9th Cir. Feb. 8, 2018) (unpublished) (listing, in analyzing a constructive fraud claim as opposed to an actual fraud claim, various California statutory fraud considerations). The Uniform Fraudulent Transfer Act, adopted with modification in various state codes, identifies additional considerations providing courts guidance in making these determinations. See, e.g., Cal. Civ. Code § 3439.03(b). And while the confluence of various badges may constitute persuasive evidence of a debtor's actual intent, the confluence will rarely constitute conclusive evidence—because the inquiry in evaluating actual fraud claims is a subjective one. See, e.g., In re Jeffrey Bigelow Design Group, Inc., 956 F.2d 479 (4th Cir. 1992). No single factor is determinative, no specific subset of factors dictates an outcome, and the list is not to be applied formulaically. See, e.g., Tenorio, 2018 WL 989691, at *10. Instead, the court is to consider all the relevant circumstances surrounding the transfers and ultimately determine whether the "state of mind of the debtor" belied an intent to delay or defraud creditors as required by the Bankruptcy Code. See, e.g., In re Cohen, 199 B.R. 709, 717 (B.A.P. 9th Cir. 1996); see also Tenorio, 2018 WL 989691, at *10.
Despite the absence of any admissible evidence establishing the presence of any of these badges, the court will endeavor to evaluate the evidence as Trustee has presented it. With respect to any question of Evans's insider status, the court notes the Bankruptcy Code provides that an insider may include "a relative of the debtor." 11 U.S.C. § 101(31). And a relative may include any "individual related by affinity or consanguinity within the third degree as determined by the common law." 11 U.S.C. § 101(45). Evans, in other words, would have at one point been a relative and thus an insider, but upon divorce, because he was no longer "related by affinity," he was no longer an insider on that basis. See, e,g. 2 Collier on Bankruptcy ¶ 101.45 (15th ed. Rev. 2006).
That may not end the insider inquiry, however, because the legislative history, embraced by the courts in evaluating insider status, provides that an insider is "one who has a sufficiently close relationship with a debtor that his conduct is made subject to closer scrutiny than those dealing at arms length with the debtor." S. Rep. No. 95-989, 95th Cong., 2nd Sess. 25 (1978) and H.R. Rep. No. 95-595, 95th Cong. 1st Sess. 312 (1977), reprinted in U.S. Code Cong. & Admin. News, 1978, pp. 5787, 5810, 6269; see, e.g., In re Hill, 342 B.R. 183, 199 (Bankr. D.N.J. 2006). And in determining the closeness of the relationship, courts have concluded the essential question is "the degree to which the transferee is able to exert control or influence over the debtor." See, e.g., In re Schuman, 81 B.R. 583, 586 (9th Cir. B.A.P. 1987). Here, the Trustee has produced no evidence of Evans's control or influence over Castro and, again, appears to have abandoned the duress-based claim. There is also no allegation the divorce was a sham and no evidence the parties have maintained a particularly amicable post-divorce relationship. As Evans correctly points out, courts generally decline to find insider status for ex-spouses assuming the divorce has not been collusive, and there is no evidence or even allegation of collusion here. See, e.g., In re Carbaat, 357 B.R. 553 (Bankr. N.D. Cal. 2006). Evaluating the evidence, sparse as it is, even in the light most favorable to the Trustee, the court cannot conclude the Trustee can establish Evans's insider status here.
Regardless, it appears the real crux of the Trustee's claim is that Castro received less than reasonably equivalent value for the transfers she made as a result of the dissolution proceeding—he employs that basic assertion in support of his contentions that various other badges of fraud were present. One potential wrinkle with using this assertion as the foundation for an actual fraud claim arises because transfer for less than reasonably equivalent value may constitute both a badge of actual fraud as recognized by at least some case law, as well as an alternative ground for avoidance based on constructive fraud under section 548. In other words, under section 548(a)(1)(A), the Trustee may avoid actually fraudulent transfers based in part on a showing of a transfer made for less than reasonably equivalent value, or alternatively, under section 548(a)(1)(B), the Trustee may avoid transfers made for less than reasonably equivalent value regardless whether actual fraud can be established, where other circumstances are also present. See 11 U.S.C. § 548. And while Evans correctly points out that the Ninth Circuit has relatively recently explained that a dissolution judgment, following a regularly-conducted state court dissolution proceeding, "conclusively establishes" reasonably equivalent value for purposes of section 548(a)(1)(B), whether that rule applies to the section 548(a)(1)(A) analysis is somewhat unclear. See In re Bledsoe, 569 F.3d 1106, 1111 (9th Cir. 2009). Without some analogous rule for section 548(a)(1)(B) claims, the Bledsoe court observed, every state court divorce decree featuring an unequal division of property would be subject to bankruptcy scrutiny—an untenable result. Id. Having embraced that reasoning, the Bledsoe court suggested both that: (1) the rule that a dissolution judgment conclusively establishes reasonably equivalent value applies "for the purposes of [section] 548," but (2) the rule applies only "in the absence of actual fraud." Id. The latter proposition appears to limit the former and thus the wrinkle arises—it might well be nonsensical for the court to cite the Bledsoe decision in support of a conclusion the state court judgment precludes an actual fraud finding given the Bledsoe court's express indication that the reasonably equivalent value rule applies only after actual fraud has been adjudged absent.
But perhaps more importantly, various courts have observed that the adequacy of consideration provided should normally be immaterial to the question of whether a transfer is actually fraudulent—that question is typically relevant only to constructive fraud claims. See Cohen, 199 B.R. at 717. And with respect to the more relevant question of Castro's state of mind and the light the standard badges of fraud might shed on that question, the limited evidence the Trustee has presented raises no triable issue of fact. It appears Castro became insolvent not long after the transfers were made, but that may well be the only badge the Trustee might establish for a jury. He has provided no evidence Castro was threatened with suit, no evidence she intended creditors would go unpaid at the time of or after the transfers, no evidence she retained possession or control of the properties after the transfers, no evidence she intended to conceal or remove assets from the reach of creditors, and no evidence, as noted, establishing Evans's insider status. The Trustee has, as noted above, produced no evidence of Castro's intent at all and he has added no real argument in support as far as the court can discern—at various points in his motion, he appears to concede he makes no significant actual fraud argument. See, e.g., ECF No. 42 at 8. Given this record, the court cannot conclude the Trustee has established a triable issue of fact on his actual fraud claim, and the court will deny his motion for summary judgment on this ground and grant Evans's opposing motion.
The constructive fraud analysis, though not always clear from the submissions of the parties, examines questions distinct from the actual fraud analysis. Section 548(A)(1)(B) allows the Trustee to avoid transfers made within two years of the filing of the petition, where a debtor has (1) received less than reasonably equivalent value in consideration for the transfer, and (2) was insolvent on the date the transfer was made or became insolvent as a result of the transfer (or, among other possibilities, became unable to pay debts as they matured). See 11 U.S.C. § 548(a)(1)(B). The transferor's intent is irrelevant for purposes of analysis of these claims—the "issue is the equivalence of the consideration coupled with either insolvency, or inadequacy of remaining capital, or inability to pay debts as they mature." Cohen, 199 B.R. at 717.
And as explained above, the Bledsoe court's conclusion that a state court's dissolution judgment conclusively establishes reasonably equivalent value where the divorce proceeding has been regularly contested and no actual fraud has been found, though largely irrelevant to the actual fraud analysis, is clearly pertinent for purposes of the Trustee's constructive fraud claim. See Bledsoe, 569 F.3d at 1112. As Evans points out, the Superior Court proceeding here was regularly contested, both parties were represented by counsel, Castro's counsel drafted the settlement agreement, and no suggestion of collusion or sandbagging has been made. That history alone suggests the Trustee cannot, as a matter of law, establish an absence of reasonably equivalent value for purposes of satisfying section 548(a)(1)(B), and his claim of constructive fraud must fail. But even scrutiny of the limited record regarding the property division bears no further fruit for the Trustee. Based on the settlement agreement, incorporated in the Superior Court's final decree, Castro appears to have received cash, interests in two pieces of real property, a portion of the assets from the nursery the former spouses apparently ran together, and a substantial interest in the retirement benefits Evans had accrued through the date of their separation. The evidence Trustee has produced in support of his claims those assets were of markedly lesser value than the assets Castro transferred in exchange does little to probe the question—in large part because he has done nothing to establish the value of most of the items identified in the decree and has provided no itemization based on which a rational jury might conclude Castro received value not "substantially comparable to the worth of the transferred property." See, e.g., BFP v. Resolution Trust Corp., 511 U.S. 531, 533 (1994).
As a result, given this record, the court concludes the Trustee cannot prevail as a matter of law on his constructive fraud claim; the court will deny his motion for summary judgment on this ground and grant Evans's opposing motion for summary judgment on this ground.
The Trustee also seeks to avoid the transfers based on two Guam statutory provisions—20 G.C.A. § 6101 and 20 G.C.A. § 6103. Section 6101 indicates that transfers made "with intent to delay or defraud any creditor" are void against all creditors, and under 11 U.S.C. § 544, that may constitute a basis for avoidance here. For the reasons explained above, however, the Trustee has raised no issue of triable fact with respect to Castro's actual intent, and thus he cannot prevail on a claim based on section 6101. See, e.g. Town House Dep't Stores, Inc. v. Ahn, 2000 Guam 32, ¶ 19 (Guam 2000) ("For purposes of determining whether to set aside a conveyance of property pursuant to 20 G.C.A. § 6101, the question of actual intent to defraud the creditor is the essential element of a cause of action."); see also Ukau v. Wang, 2016 Guam 26, ¶ 38 (Guam 2016) ("[U]nder section 6101, a creditor may avoid a transfer when he is able to affirmatively prove actual fraudulent intent on the part of the debtor.").
Even in the absence of actual fraud, the Ahn court explained that section 6103 creates an alternative avenue for avoidance based on constructive fraud in cases where two conditions are met: (1) the transferor is insolvent (or in contemplation of insolvency) at the time of the transfer, and (2) the transferor has not received valuable consideration for the transfer. See, e.g., Ahn, 2000 Guam 32, ¶ 26; but see 20 G.C.A. § 6103 (suggesting constructive fraud may arise where either condition is satisfied). Insolvency arises under the Guam Code when a person "has ceased to pay his debts in the ordinary course of business or cannot pay his debts as they become due." 13 G.C.A. § 1201. And consideration, the court notes, is given a far more expansive definition than under section 548 of the Bankruptcy Code—the Guam Code defines it as "any benefit conferred, or agreed to be conferred, upon the promisor, by any other person, to which the promisor is not lawfully entitled, or any prejudice suffered, or agreed to be suffered by such person . . . ." 18 G.C.A. § 85501; see also Ahn, 2000 Guam 32, ¶ 26.
The record on the insolvency question here is minimal, but as noted above, the Trustee may marshal enough evidence to create a genuine factual dispute, such that a rational jury might find in his favor on this question. Regardless whether he may establish the insolvency condition, however, the record on the question of consideration falls far short of raising the requisite factual dispute, as explained above. The Trustee has made no attempt to establish values for various items identified in the settlement agreement and no attempt to compare the total values finally exchanged. The settlement agreement itself suggests Castro received various "benefits" as required by the combination of 20 G.C.A. § 6103 and 18 G.C.A. § 85501, and the Trustee has identified no authority suggesting the values of the assets exchanged must be reasonably equivalent as they must be for constructive fraud claims arising under 11 U.S.C. § 548. Even had he identified that authority, the minimal record on reasonable equivalence, as explained above, tips so sharply in Evans's favor that the court cannot conclude the Trustee has generated any genuine issue of material fact on the consideration question.
And because the Trustee cannot, therefore, prevail on his claims grounded in section 6101 and section 6103, the court will deny his motion for summary judgment on his claim for relief under those sections and grant Evans's opposing motion for summary judgment on that claim.
Conclusion.
Because Plaintiff Trustee has failed to raise the requisite factual questions for each of the necessary elements for his claims, the court DENIES Plaintiff's motion for summary judgment (ECF No. 42). Defendant's motion for summary judgment (ECF No. 47) is GRANTED with respect to each of Plaintiff's claims for relief. Plaintiff's motion to enlarge time (ECF No. 51) is MOOT.
SO ORDERED.
/s/ Frances M. Tydingco-Gatewood
Chief Judge
Dated: August 3, 2018