Opinion
21-11950 Adv. 22-1078
01-04-2024
In re: KAREN HENIZE Debtor v. MATTHEW ISAACS Defendant GEORGE LEICHT, TRUSTEE Plaintiff
George Leicht, Esq. Christopher Travis, Esq.
This opinion is not intended for publication or citation.
Chapter 7
George Leicht, Esq.
Christopher Travis, Esq.
MEMORANDUM OPINION DENYING PLAINTIFF-TRUSTEE'S MOTION FOR SUMMARY JUDGMENT [DOCKET NUMBER 13]
BETH A. BUCHANAN, UNITED STATES BANKRUPTCY JUDGE
This matter is before this Court on the Motion for Summary Judgment filed by Plaintiff-Trustee George Leicht ("Trustee") [Docket Number 13] ("Motion"); the Response filed by Defendant Matthew Isaacs ("Isaacs") [Docket Number 14]; and the Reply filed by the Trustee [Docket Number 15].
In his Motion, the Trustee asserts that the $3,500 paid by the Debtor to her boyfriend, Isaacs, towards the lease or purchase of a vehicle that he bought for her use, is an avoidable preferential transfer pursuant to 11 U.S.C. § 547 or an avoidable fraudulent transfer pursuant to 11 U.S.C. § 548. Because the Trustee has not demonstrated that he is entitled to judgment on his claims as a matter of law and because a genuine dispute of fact exist regarding the value received by the Debtor in exchange for the $3,500 paid to Isaacs, the Trustee's Motion is denied.
I. JURISDICTION
This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157(a) and 1334, and the standing General Order of Reference in this District. This matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(F) and (H).
II. BACKGROUND
In the Joint Stipulations of the Parties, the Trustee and Isaacs agree to the following facts:
1. On September 8, 2021, the Debtor filed an original petition under Chapter 13 of the Bankruptcy Code. Schedule A/B stated the Debtor did not own, lease, or have legal or equitable interest in any motor vehicle. Official form 106G [Executory contract] Listed no rental agreements Schedule J of the petition stated that the debtor had a car rental payment of $300 per month. (Doc. No. 1).
2. On October 7, 2021, the debtor filed her First Amended Petition, which affirmed that the Debtor did not own, lease or have legal or equitable interest in any motor vehicle. (Doc. No. 18).
3. Debtor's first amended and second amended chapter 13 plans filed September 17, 2021 (Doc. No. 12) and October 14, 2021 (Doc. No. 20) stated the Debtor had no lease or secured claims.
4. On December 15, 2021, the debtor converted this case to a case filed under chapter 7 (Doc. No. 34). George Leicht was assigned as the Chapter 7 Trustee ("Trustee").
5. On March 7, 2022, the Debtor was examined pursuant to 11 U.S.C. 341 and when asked whether the debtor owned a motor vehicle she responded
"I am currently paying for one, it is not in my name until I reach the agreement payment amount" [The vehicle is owned] "by a gentleman I live with, he owns it and I pay him monthly for it" (341 audio transcript @ 22:43).
6. The Debtor identified the motor vehicle as a 2010 GMC Arcadia. (the "Arcadia").
7. Subsequently the "gentleman I live with" or boyfriend was identified as Matthew Isaac the defendant in this Adversary case.
8. Defendant Isaac cohabits with the Debtor in a residence owed by the debtor but Isaac does not contribute to the household per Schedule I.
9. On March 10, 2022, debtor's counsel provided a copy of the Arcadia title. The Arcadia is titled in the name of Matthew Isaac, The Arcadia was purchased on September 24, 2020, approximately one year prior to the petition date of the Debtor's Chapter 13 filing.
10. There is no written agreement between the Debtor and Defendant regarding purchase of the Vehicle or lease of the Vehicle. The Debtor did not execute a promissory note in favor of the Defendant Isaac.
11. On April 5, 2022, the Trustee filed a motion pursuant to Bankruptcy Rule 2004 requiring Defendant Isaac to provide information regarding the number of payments and amounts received from the Debtor as they related to the purchase of the Motor Vehicle (Doc. No. 47).
12. Defendant Isaac stipulates that there is no documentation regarding payments or payment agreement.
13. On June 16, 2022, counsel for the Debtor and Defendant Isaac stipulated that the Debtor paid Defendant Isaac $3,500.00 since September 2021 to the date of the original bankruptcy filing.
14. On July 22, 2022, the Debtor filed a third amended petition, schedule A/B stated that that the debtor's boyfriend purchased a vehicle in September 2020 and the debtor paid $300 monthly in order to obtain title to the vehicle upon payment in full first payment was made in September 2020. (Doc. No. 56).
15. On debtor's initial bankruptcy petition (Doc. No. 1), first amendment to the petition (Doc. No. 16) second amended petition (Doc. No. 27) and third amendment to the petition (Doc. No. 47) no executory contract or lease was listed on the Schedule G. Defendant asserts that the payments are contemporaneous transfers for the use of the vehicle, and that Defendant intended to transfer the title to the vehicle to Debtor upon full payment.
16. Defendant Isaac is not listed as a creditor of the Debtor.
17. Defendant Isaac is not in the business of leasing motor vehicles.
18. Defendant Isaac is not in the business of financing motor vehicles.
19. Defendant Isaac is not in the business of selling motor vehicles.
20. Debtor was without a vehicle at the time Defendant obtained the 2010 GMC.
21. Defendant does not make any significant use of the vehicle in question, as Defendant has his own vehicle.
22. Debtor has a job, and minor children for which she has needed the use of a vehicle each month in question.
23. The value of the use of the vehicle in question exceeds that which a rental vehicle would have cost Debtor in the periods paid.[Docket Number 8].
III. LEGAL ANALSYIS
A. Summary Judgment Standard
This Court addresses the Trustee's Motion under the standard set forth in Rule 56(a) of the Federal Rules of Civil Procedure (the "Civil Rules") made applicable to this proceeding by Rule 7056 of the Federal Rules of Bankruptcy Procedure. Civil Rule 56(a) provides that summary judgment is to be granted by this Court "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." Fed.R.Civ.P. 56(a). "As to materiality, the substantive law will identify which facts are material. Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A "genuine" dispute exists only where "evidence is such that a reasonable [finder of fact] could return a [judgment] for the nonmoving party." Id.; Gallagher v. C.H. Robinson Worldwide, Inc., 567 F.3d 263, 270 (6th Cir. 2009).
To prevail, the moving party, if bearing the burden of persuasion at trial, must establish all elements of its claim. Celotex Corp. v. Catrett, 477 U.S. 317, 331 (1986) (dissent). If the burden is on the nonmoving party at trial, the movant must: 1) submit affirmative evidence that negates an essential element of the nonmoving party's claim; or 2) demonstrate to the court that the nonmoving party's evidence is insufficient to establish an essential element of the nonmoving party's claim. Id. at 331-32. Thereafter, the opposing party "must come forward with 'specific facts showing that there is a genuine issue for trial.'" Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986) (citations omitted); see also Anderson, 477 U.S. at 249-250.
All inferences drawn from the underlying facts must be viewed in a light most favorable to the party opposing the motion. Matsushita, 475 U.S. at 587-88; Anthony v. BTR Auto. Sealing Sys., Inc., 339 F.3d 506, 511 (6th Cir. 2003). Nonetheless, mere conclusory allegations or unsupported opinions of the nonmovant are insufficient to defeat a motion for summary judgment. See Blaney v. Cengage Learning, Inc., 2011 U.S. Dist. LEXIS 43780, at *19-20, 2011 WL 1532032, at *7 (S.D. Ohio Apr. 22, 2011) ("Although the summary judgment standard requires that evidence of record be viewed in the light most favorable to the nonmoving party, it does not require that all bald assertions and subjective unsupported opinions asserted by the nonmoving party be adopted by the court").
B. Avoidance of Preferential Transfers
The Trustee asserts that there exists no genuine dispute of facts that the $3,500 paid by the Debtor to Isaacs amounts to an avoidable preferential transfer recoverable by the Trustee on behalf of the estate pursuant to 11 U.S.C. § 547. Section 547(b) allows chapter 7 trustees to avoid preferential prepetition transfers made by a debtor to a creditor if the transfer was: (1) made to or for the benefit of the creditor, (2) on account of an antecedent debt, (3) made while the debtor was insolvent, (4) made on or within ninety (90) days before the date of the filing of the petition and (5) which enabled the creditor to receive more than he would have received in a Chapter 7 liquidation case. 11 U.S.C. § 547(b); Walls v. Gruen Marketing Servs., Inc. (In re Paradise Valley Holdings, Inc.), 347 B.R. 304, 308 (Bankr.E.D.Tenn. 2006). The Trustee carries the burden of proving these elements. 11 U.S.C. § 547(g).
The statute further provides that a trustee may recover a transfer made between ninety (90) days and one year before the date of the bankruptcy filing if the creditor was an insider at the time of the transfer. 11 U.S.C. § 547(b)(4)(B).
On summary judgment the Trustee only briefly discusses the elements of a § 547(b) claim and the facts he alleges to support it. The Trustee either omits discussion of or concludes without sufficient analysis that Isaacs is an insider and the appropriate look back period is one year, that payments were made on account of an antecedent debt, and that Isaacs received more than he would in a chapter 7 liquidation. Furthermore, the Trustee discusses factual support for insolvency during the year prior to the bankruptcy filing only minimally in a footnote that fails to meet Federal Rule of Civil Procedure 56(c) requirements for citation to supporting evidentiary materials of record. Moreover, the parties' stipulations and an unsupported statement attributed to the Debtor in the Trustee's own reply brief raise uncertainty as to whether the $3,500 in payments occurred prior to the bankruptcy filing or post-petition placing the applicability of § 547(b) in question [See Docket Number 8, ¶ 13 and Docket Number 15, p. 3]. Although the elements may seem beyond dispute to the Trustee, the lack of a sufficient analysis makes it difficult for the opposing party to properly respond and for the Court to determine whether the claim's elements are met and whether a dispute of material fact exists. For these reasons, the § 547(b) elements are more appropriately determined at trial.
Next, this Court turns to a statutory defense to a preferential transfer raised by Isaacs in his response. The defense is found in 11 U.S.C. § 547(c)(1) which provides, in relevant part:
(c) The trustee may not avoid under this section a transfer-
(1) to the extent that such transfer was-
(A) intended by the debtor and the creditor to or for whose benefit such transfer was made to be a contemporaneous exchange for new value given to the debtor; and
(B) in fact a substantially contemporaneous exchange[.]11 U.S.C. § 547(c)(1).
The contemporaneous exchange for new value exception has three required elements: (1) both the debtor and creditor must intend the transfer to be a contemporaneous exchange; (2) the exchange must, in fact, be contemporaneous; and (3) the exchange must be for new value. Suhar v. Agree Auto Servs. (In re Blakely), 497 B.R. 267, 278 (Bankr.N.D.Ohio 2013); Paradise Valley Holdings, Inc., 347 B.R. at 309. For purposes of this statute, "new value" is defined as "money or money's worth in goods, services, or new credit . . . [.]" 11 U.S.C. § 547(a)(2). While the Trustee carries the burden of proof with respect to the elements to avoid a preferential transfer under § 547(b), Isaacs carries the burden of proving the elements of a § 547(c) defense including that the transfer was a contemporaneous exchange for new value. 11 U.S.C. § 547(g).
On summary judgment, Isaacs asserts that the new value he gave in exchange for payments from the Debtor was the Debtor's continued use of the vehicle which, each month, lessened the value of the vehicle he continued to own. As factual support, he points to the parties' stipulation that the Debtor has a job and minor children for which she needed the use of a vehicle each month in question [Docket Number 8, ¶ 22]. Furthermore, he points to the parties' vague agreement that "[t]he value of the use of the vehicle in question exceeds that which a rental vehicle would have cost Debtor in the periods paid." [Docket Number 8, ¶ 23].
A debtor's continued use of a creditor's property can amount to new value if that use confers an economic benefit to the debtor or saves the debtor from an expense that she would otherwise incur. See Field v. Maryland Motor Truck Assoc. Workers Comp. Self-Ins. Group (In re George Transfer, Inc.), 259 B.R. 89, 95 (Bankr. D. Md. 2001) (noting that new value may include the continued use of rental property); see also Dery v. Karafa (In re Dearborn Bancorp, Inc.), 583 B.R. 395, 410 (Bankr. E.D. Mich. 2018) (noting that the new value must provide a direct or indirect economic benefit to the debtor as viewed from the perspective of the debtor's creditors, which can include monetary value that saved the debtor an expense). However, Isaacs does not attempt to quantify the value of the Debtor's use of the vehicle beyond the vague stipulation of the parties. See Dearborn Bancorp, 583 B.R. at 416 (noting a past split but concluding that the better and perhaps unanimous current view is that a creditor asserting a § 547(c)(1) defense must prove the specific monetary measure of the new value given to the debtor). Furthermore, Isaacs cites no facts to support the other requirements for proof of a contemporaneous exchange including that both the Debtor and Isaacs intended the transfer to be a contemporaneous exchange and that the exchange was, in fact, contemporaneous. See Blakely, 497 B.R. at 278.
Accordingly, summary judgment is denied with respect to the elements required for the Trustee to prove an avoidable transfer under 11 U.S.C. § 547(b).
Isaacs did not file a cross-motion for summary judgment. This Court notes, however, that the elements Isaacs must establish to prove a § 547(c)(1) defense are similarly lacking.
C. Avoidance of Fraudulent Transfers
Alternatively, the Trustee asserts that no genuine dispute of fact exists that the $3,500 in payments amount to a fraudulent transfer as a matter of law under 11 U.S.C. § 548.
Section 548(a)(1)(A) provides that a transfer of the debtor's property made within two years before the date of the filing of the petition may be avoided if the debtor made it with actual intent to hinder, delay, or defraud her creditors. 11 U.S.C. § 548(a)(1)(A). Alternatively, Section 548(a)(1)(B) provides that a transfer of the debtor's property within that two year period may be avoided if: (1) the debtor received less than a reasonably equivalent value in exchange for the transfer; and (2) the debtor was insolvent or became insolvent as a result of the transaction. 11 U.S.C. § 548(a)(1)(B). Fraudulent transfers of the latter type are said to be constructively fraudulent. The Trustee carries the burden of proof with respect to the elements of an avoidable fraudulent transfer under either § 548(a)(1)(A) or § 548(a)(1)(B). Slone v. Lassiter (In re Grove-Merritt), 406 B.R. 778, 789 (Bankr. S.D. Ohio 2009).
As an alternative to proving insolvency, the Trustee may prove one of the following: (a) the debtor was engaged in business or a transaction, or was about to engage in business or a transaction, for which any property remaining with the debtor was an unreasonably small capital; (b) the debtor intended to incur, or believed that the debtor would incur, debts that would be beyond the debtor's ability to pay as such debts matured; or (c) the debtor made such transfer to or for the benefit of an insider, or incurred such obligation to or for the benefit of an insider, under an employment contract and not in the ordinary course of business. 11 U.S.C. § 548(a)(1)(B)(ii)(II)-(IV).
Similar to the preferential transfer briefing on summary judgment, the Trustee's discussion of the elements to avoid a fraudulent transfer is minimal with no analysis or citation to supporting facts pursuant to Federal Rule of Civil Procedure 56(c). Indeed, the extremely limited discussion of Section 548 fails to identify whether the Trustee is pursuing avoidance of the $3,500 payments under § 548(a)(1)(A), § 548(a)(1)(B), or both. As noted before, a lack of a sufficient analysis makes it difficult for the opposing party to properly respond and for the Court to determine whether the elements of a claim are met and whether a dispute of material fact exists. Accordingly, this Court determines that the Trustee has failed to demonstrate that he is entitled to judgment as a matter of law with respect to his fraudulent transfer claim.
Although the Trustee ends his short discussion of § 548 with the assertion that the $3,500 in transfers "effectively hindered, delayed or defrauded the debtor's creditors" [Docket Number 13, p. 7], the conclusory statement is made without factual support nor does it comport with the "actual intent" required to prove an avoidable transfer under Section 548(a)(1)(A).
Furthermore, to the extent that the Trustee pursues the fraudulent transfer claim under § 548(a)(1)(B), Isaacs disputes that the Debtor received less than reasonably equivalent value. Pointing to the same stipulations that he used to support his "new value" defense under § 547(c)(1), Isaacs asserts that the Debtor's continued use of the vehicle was reasonably equivalent value for her monthly payments to him totaling $3,500.
To determine whether a challenged transfer is supported by reasonably equivalent value, "courts generally compare the value of the property transferred with the value of that received in exchange for the transfer." Silagy v. Gagnon (In re Gabor), 280 B.R. 149, 158 (Bankr.N.D.Ohio 2002). In this case, that would require comparison of the $3,500 in payments to Isaacs to the value of what the Debtor received in exchange, i.e., the Debtor's continued use of the vehicle.
As noted in the § 547(c)(1) analysis, the evidentiary materials presented on summary judgment fail to sufficiently quantify the value of the Debtor's use of the vehicle in a manner that would allow comparison to the $3,500 paid so this element of a constructively fraudulent transfer remains in dispute.
IV. CONCLUSION
The Trustee has not demonstrated entitlement to judgment as a matter of law with respect to the elements for avoidance of the $3,500 in payments to Isaacs as a preferential or fraudulent transfer. Furthermore, a dispute of fact exists regarding the extent to which the Debtor received "new value" / "reasonably equivalent value" for those payments. Accordingly, summary judgment is DENIED.
SO ORDERED.