In re Perpinan

Full title: In re JOHN PERPINAN, Debtor(s). JEFFRY LOCKE, Trustee, Plaintiff(s), v…

Court: United States Bankruptcy Court, N.D. California

Date published: Feb 14, 2007

No. 05-14638, A.P. No. 06-1087 (Bankr. N.D. Cal. Feb. 14, 2007)

Opinion

No. 05-14638, A.P. No. 06-1087.

February 14, 2007

Memorandum After Trial

ALAN JAROSLOVSKY, Bankruptcy Judge

Defendant Joan Scoggins is the elderly mother of debtor John Perpinan. In this adversary proceeding, plaintiff Jeffry Locke, the trustee of Perpinan's Chapter 7 bankruptcy estate, seeks to recover $15,428.88 in payments he alleges were made to Scoggins or on her behalf a little more than 90 days prior to the bankruptcy.

There is no evidence of any loan made by Scoggins to her son, nor is there any convincing evidence that she received $15,428.88. The evidence showed only that Scoggins had pledged her credit union shares as collateral for a loan her son had made from Redwood Credit Union. When the escrow closed on the sale of his residence, a check for $8,192.88 was cut to Scoggins which she turned over to Redwood Credit Union, thereby exonerating her shares.¹

1 Counsel for Locke took great umbrage at the court's expression of belief in Scoggin's credibility. Scoggins is elderly and has had significant health problems. She appears to be an innocent victim in these proceedings. While her overall mental acuity seems fairly good, she clearly does not understand the nature of the bankruptcy proceedings or how she got caught up in them. The court believes her to be honest and forthright.

The court finds without merit Scoggins' argument that the check written to his mother out of escrow was not a transfer of an interest of the debtor in property, as required by § 547(b) of the Bankruptcy Code. Scoggins supports her dubious proposition by citing Begier v. Internal Revenue Service, 496 U.S. 53 (1990), which dealt with recovery of tax payments held in trust by the debtor, and In re Keller, 185 B.R. 796 (9^th Cir. BAP 1995), which held that payments out of a dissolution escrow to the debtor's spouse were not avoidable.² Scoggins cites no case holding that a payment to a creditor out of escrow on dissolution of a marriage cannot be a preference. "A transfer of the debtor's property is not immune from recovery as a voidable preference merely because it was not transferred directly by the debtor, but through an escrow account." In re Interior Wood Products Co., 986 F.2d 228, 231 (8^th Cir. 1993). Perpinan clearly had an interest in the funds.

2 Likewise, Matter of Paderewski, 564 F.2d 1353 (9^th Cir. 1977), dealt only with rights of spouses, not preferences to third parties.

Perpinan was insolvent on the date of the transfer, as that term is defined by § 101(32) of the Bankruptcy Code. On that date, July 12, 2005, he had just received $121,750.84 from the court-ordered sale of his pursuant to marital dissolution proceedings.³ All his other assets were exemptible, as well as $50,000.00 in home sale proceeds, leaving non-exempt assets of $71,750.84.⁴ He had admitted debts of $14,613.34, plus a disputed debt of $144,256.86 Janet Low.

3 For some reason, Scoggins seems to think that the assets of Perpinan's ex-wife should be counted in determining if Perpinan was insolvent. There is no support for the proposition that the assets of a codebtor are to be considered in determining a debtor's solvency.

4 Exempt assets are not counted in determining solvency pursuant to § 101(32)(2) of the Code.

The court is entirely unconvinced that the Low claim is invalid or fraudulent. In separate proceedings, Perpinan was denied a discharge because he kept the proceeds from the sale of his home in cashier's checks so that Low could not use legal process to seize them. While Perpinan had obtained a signed release from Low, it seems almost certain that the release would be voided pursuant to California's elder abuse laws. While the court finds that the $144,000.00 figure is considerably inflated, there is at least an 80% probability of liability in the amount of around $100,000.00. Accordingly, for purposes of determining solvency $80,000.00 is properly attributed to the Low claim. See In re Sierra Steel, Inc., 96 B.R. 275, 279 (9^th Cir. 1989). Thus, for solvency purposes Perpinan had $94,613.34 in debt and only $71,750.84 in assets, making him insolvent.

Moreover, when the escrow closed Perpinan had decided to keep the proceeds in cashier's checks to conceal the proceeds from Low's attorney. Therefore, all of the proceeds are not counted as assets for insolvency purposes pursuant to § 101(32)(1) of the Code.⁵

5 Confusing issue preclusion with claim preclusion, Locke has argued somewhat lamely that this court's findings in the objection to Perpinan's discharge are binding on Scoggins because the are "in privity." While privity (i.e. mutuality) is required for claim preclusion, it is not for issue preclusion. The application of issue preclusion to a third party in a subsequent case is a matter of discretion. See Klein, "Principles of Preclusion and Estoppel in Bankruptcy Cases," 79 Am.Bkr.L.J. 839, 856 (2005).
Since Scoggins participated in the action against Perpinan and is represented by the same counsel, it is appropriate to apply issue preclusion in this case and not count Perpinan's sale proceeds in determining solvency because he concealed them.

As is typical in small preference actions, neither side has correctly stated the case. The proper analysis is as follows:

1. The payment to Scoggins from escrow was a transfer of property in which the debtor had an interest, as discussed above. The use of an escrow does not shield the transfer from avoidance.

2. A guarantor is a contingent claimant pursuant to sections 101(1)(A) and 101(5)(A) of the Code. In re Sufolla, Inc., 2 F.3d 977, 986 (9^th Cir. 1993); In re Wesley Industries, Inc., 30 F.3d 1438, 1441n3 (11^th Cir. 1994).

3. Scoggins' guarantee created an antecedent debt, pursuant to § 101(12) and § 101(5)(A).

4. Pursuant to § 547(b)(1), a transfer may be avoided if it was either to or for the benefit of a creditor. A payment to a third party creditor is for the benefit of an insider-guarantor because it reduces the insider's exposure on the guarantee. In re Skywalker, Inc, 155 B.R. 526, 529 (9^th Cir. BAP 1993). In this case, the payment was both to Scoggins and for her benefit. Pursuant to § 550(a), the transfer may be recovered from an initial transferee even if the transfer was not for the initial transferee's benefit. In this case, Scoggins was the initial transferee and the transfer was for her benefit.

5. The payment was made while the debtor was insolvent, as discussed above.

6. Scoggins was an insider.

7. The payment was made less than one year before the filing of the petition.

8. Unsecured creditors will not receive a 100% dividend in this case. The payment exonerated Scoggins' credit union shares, reducing her contingent claim to zero. If the payment had not been made, Scoggins' credit union shares would have been used to satisfy Perpinan's debt to the credit union and Scoggins would have an unsecured claim. Therefore, the payment allowed Scoggins to receive more than she would be entitled to receive if the payment had not been made. In re Powerline Oil Co., 59 F.3d 969, 972 (9^th Cir. 1995).

9. Scoggins established no valid defense.

For the foregoing reasons, the transfer to Scoggins is avoidable. Accordingly, Locke shall have judgment against Scoggins in the amount of $8,192.88 together with costs of suit.

This memorandum constitutes the court's findings and conclusions pursuant to FRCP 52(a) and FRBP 7052. Counsel for Locke shall submit an appropriate form of judgment forthwith.