Opinion
Case No. 02-22073, Adv. No. 03-6114.
June 22, 2007
This proceeding comes before the Court on the defendants' Motion for Summary Judgment or Judgment on the Pleadings (Doc. No. 27) on Counts I and IV of the plaintiff's complaint. Although characterized as an alternative motion, the arguments of the defendants and the plaintiff, including the presentation of matters outside the pleadings, are presented to the Court within the summary judgment framework. Accordingly, the motion shall be treated as one for summary judgment pursuant to Fed.R.Bankr.P. 7012. The pleadings do not contest the core nature of this proceeding. The Court finds that this is a core proceeding over which it has jurisdiction.
28 U.S.C. §§ 1334 and 157.
Count I of the plaintiff's complaint seeks to deny the discharge of Richard and Susan Wurtz, the debtors in the underlying bankruptcy case, pursuant to 11 U.S.C. § 727(a)(2)(A), because they allegedly transferred property with the intent to hinder, delay, or defraud a creditor within the one year preceding the date they filed their bankruptcy petition. The defendants believe they are entitled to summary judgment on Count I because the fraudulent transfers alleged therein all occurred more than one year before the debtors filed their bankruptcy petition. Count IV of the plaintiff's complaint seeks to avoid pursuant to the Kansas Uniform Fraudulent Transfers Act certain transfers made by debtor/defendant Richard Wurtz. The defendants believe Count IV of the plaintiff's complaint should be dismissed because the plaintiff does not have standing to seek recovery pursuant to the Kansas Uniform Fraudulent Transfers Act.
K.S.A. § 33-201, et seq.
The Court has reviewed the Motion for Summary Judgment, the memoranda in support thereof, and the memorandum submitted in opposition and rules as follows:
1. The defendants' Motion for Summary Judgment on Count I of the plaintiff's complaint is granted as to defendant Susan Wurtz and denied as to defendant Richard F. Wurtz.
2. The defendants' Motion for Summary Judgment on Count IV of the plaintiff's complaint is denied because the plaintiff has standing as the assignee of the Chapter 7 trustee's right to pursue a cause of action under the Kansas Uniform Fraudulent Transfers Act pursuant to Title 28 U.S.C. § 544(b).Factual Background
The debtors in the underlying bankruptcy case, Richard F. Wurtz ("Mr. Wurtz") and Susan Wurtz ("Mrs. Wurtz"), filed their petition for bankruptcy relief on June 14, 2002. Bobby D. Associates filed this adversary complaint on August 21, 2003, seeking to deny the debtors' discharge and avoid certain transfers pursuant to state law. Mr. and Mrs. Wurtz seek summary judgment on Counts I and IV of Bobby D. Associate's complaint. The following facts are relevant.
Chronology
On or about April 29, 1999, judgment was entered by an Arizona court in favor of the plaintiff and against Mr. and Mrs. Wurtz in the amount of $51,934.60, plus interest. The judgment was registered in Johnson County, Kansas, on January 7, 2000.
Superior Court of Arizona, Maricopa County, Case No. CV98-08814.
District Court of Johnson County, Kansas, Case No. 00 CV 0143.
As best as this Court can glean from the pleadings, attachments, and transcripts of the Wurtzes' Debtor's Examination and depositions, the following is a chronology of pertinent events:
1. 1981 — Central Corridor Medical Complex L.P. ("Partnership") was formed and Mr. Wurtz made a capital contribution of $124,287.20 in consideration of an 18.5 percent limited partnership interest. The Partnership was the owner of Corridor Medical Complex Building ("Building"). 2. 1981 — Mr. Wurtz established the Richard F. Wurtz, Ph.D., P.C. Defined Benefit Plans ("Pension Plan"). 3. July 21, 1981 — Mr. Wurtz as obligee executed a note in the amount of $42,188.13 to Pension Plan. 4. June 23, 1982 — Mr. Wurtz as obligee executed a $33,148.93 note to Pension Plan. 5. 1994 — Mr. Wurtz acquired additional interest in the Partnership. 6. December 31, 1994 — $101,787.20 loan to Partnership by Mr. Wurtz (unsecured note executed funded in part by $60,000.00 from equity in Wurtz home and also from loans from Wayne Clauser and Dr. Tadano ($35,000.00)). 7. December 31, 1995 — $12,000.00 loan to Partnership by Mr. Wurtz (unsecured note executed). 8. December 31, 1996 — $10,500.00 loan to Partnership by Mr. Wurtz (unsecured note executed). 9. April 29, 1999 — plaintiff procured a judgment in Arizona against the Wurtzes in the amount of $51,934.50. 10. December 31, 1999 — Mr. Wurtz executed a $94,796.33 note to Pension Plan, allegedly to reflect his prior borrowings from the Pension Plan (including items no. 3 and no. 4 above, plus an additional borrowing of $17,500.00 before items no. 3 and 4.) 11. January 7, 2000 — plaintiff's Arizona judgment was registered as a foreign judgment in the District Court of Johnson County, Kansas. 12. July 28, 2000 — deposition of Mr. Wurtz conducted by plaintiff in Kansas. 13. September 12, 2000 — Mr. Wurtz formed QuarterBack, L.L.C., in which he, Mrs. Wurtz, and their five children were members (QuarterBack). 14. November 2000 — a sale contract (letter dated November 14, 2000) was effected wherein the Partnership sold the Building to a third party for $1,875,000.00. 15. February 23, 2001 — The three Partnership notes were assigned to QuarterBack by Mr.Wurtz (item nos. 6, 7, and 8 noted above), allegedly for tax purposes. The Partnership interest was also assigned to QuarterBack. 16. May 2, 2001 — the Partnership sale of the Building closed. 17. May 2, 2001 — QuarterBack signed the deed conveying the Building because Mr. Wurtz assigned his Partnership interest to QuarterBack. Proceeds of $196,995.42 were paid out on account of Mr. Wurtz's Partnership notes and capital contributions after deduction for income taxes ($47,000.00) associated with the sale. An additional $69,526.00 was paid to QuarterBack in consideration of Mr. Wurtz's Partnership interest. A summary of the distributions is set out below. 18. June 19, 2001 — Hearing in aid of execution (Debtor's Examination) by plaintiff of Mr. Wurtz under oath. 19. Summer 2001 — Mr. Wurtz was disabled. 20. July 31, 2001 — plaintiff filed an involuntary petition in bankruptcy against the debtors pursuant to section 303(b) as Case No. 01-22360-7-JTF in the District of Kansas, Kansas City Division. 21. October 10, 2001 — the involuntary petition was dismissed by plaintiff. 22. June 14, 2002 — a voluntary bankruptcy petition under Chapter 7 was filed by debtors. 23. July 25, 2003 — a Rule 2004 examination of Mr. Wurtz was conducted. 24. August 21, 2003 — this adversary proceeding was filed by plaintiff. Distribution of Partnership Building Sale Proceeds and Partnership Interest ProceedsOn May 2, 2001, Mr. Wurtz would have been entitled to receive $196,995.42 as an aftertax distribution from the sale of the Building owned by the Partnership as repayment of his prior loans and capital contributions to the Partnership. However, these notes and the Partnership interest were previously assigned to QuarterBack on February 23, 2001. The parties do not dispute the following payments at the closing of the Building sale:
(1) $95,000.00 to repay Mr. Wurtz's Pension Plan at Firstar;
(2) $35,000.00 to Dr. Tadano (partner of Mr. Wurtz) to repay personal loan;
(3) $20,000.00 to Hebert Schenk (Mr. Wurtz's attorneys) to be held in trust for Mr. Wurtz as payment for the potential settlement of the plaintiff's complaint;
(4) $35,000.00 to Wayne Clauser (Mr. Wurtz's C.P.A.) to repay personal loan;
(5) $10,000.00 to Robert Winsky (a family friend) as payment for a loan made to Mr. Wurtz to cover certain expenses incurred in his move to Arizona; and
(6) $1,199.50 to QuarterBack, L.L.C.
At the time that the Building was sold, Mr. Wurtz's Pension Plan was essentially unfunded. The plaintiff argues that the $95,000.00 distribution was made to a checking account for the Pension Plan at Firstar Bank in Phoenix, Arizona, an account that was specifically established for this purpose. However, the $95,000.00 did not remain in the Pension Plan for very long, as Mr. Wurtz proceeded with the following distributions from these funds:
a. May 3, 2001, and May 19, 2001 — Transferred a total of $60,000.00 into an IRA account at Southwest Securities that, to that point, had been minimally funded;
b. May 16, 2001 — Paid $4,425.00 in high school tuition for two daughters;
c. May 17, 2001 — Paid off college loan for his son Thomas, in the amount of $6,082.00; and
d. June 14, 2001 — Transferred $5,000.00 to Mann Financial for IRA.
QuarterBack, L.L.C., received a $1,199.50 distribution as set forth in line item no. 6 above, in addition to which QuarterBack received $69,526.00. This sum represented payment for Mr. Wurtz's partnership interest, in addition to the above distribution of $196,995.42, which represented the payment of loans and capital contributions to the Partnership. The QuarterBack bank account was at Firstar. Total deposits into the account for the month of May 2001 were $71,445.71, the bulk of which ($69,526.00) was paid on account of the Partnership interest and was deposited on May 15, 2001. By June 5, 2001, the account balance was $0.00. It appears that during June, two separate checks in the amount of $15,000.00 (one dated June 4, 2001, and the other dated June 5, 2001) were written on the account and that the balance of the funds ($14,374.36) was likewise withdrawn which resulted in an ending balance of $0.00 on June 5, 2001. This Court is unable to glean the payee for all of the checks in question. As best this Court can parse from the depositions, Debtor's Examination, and exhibits, the following distributions were made from the QuarterBack account:
a. May 17, 2001 — Payment to son Thomas Wurtz in the amount of $2,000.00 (QuarterBack account);
b. May 15, 2001 — Payment to Richard Wurtz in the amount of $3,000.00 (QuarterBack account);
c. May 19, 2001 — Payment to Richard Wurtz in the amount of $1,000.00 (QuarterBack account);
d. May 20, 2001 — Payment to son Joseph Wurtz in the amount of $18,000.00 to pay off loan (QuarterBack account);
e. May 15, 2001 — Payment as deposit on home of $3,000.00 (QuarterBack account);
f. May 19, 2001 — Payment as settlement on credit card of $1,000.00 (QuarterBack account); and
g. Through June 5, 2001 — Miscellaneous other payments/withdrawals not explained.
Mr. Wurtz testified under oath at a Debtor's Examination on June 19, 2001. This occurred nearly one year prior to the date of his bankruptcy petition. At the Debtor's Examination, Mr. Wurtz was to explain how the net $196,995.42 distribution from the sale of the Real Estate as well as those funds deposited with QuarterBack were directed. The plaintiff apparently chose not to pursue state law collection efforts after the Debtor's Examination. Instead, the plaintiff filed a petition for involuntary bankruptcy relief against Mr. Wurtz on July 31, 2001. That proceeding was dismissed on October 10, 2001, on the plaintiff's motion for want of subject matter jurisdiction. After Mr. and Mrs. Wurtz filed their petition for bankruptcy relief in this case and this adversary proceeding was commenced, the Court approved the trustee's assignment of his right to pursue an action under the Kansas Uniform Fraudulent Transfers Act to Bobby D. Associates. Discussion
See Doc. No. 38, Memorandum in Opposition to Defendant's Motion for Summary Judgment at Ex. C.
See Case No. 02-22073, Doc. No. 48.
Rule 56 of the Federal Rules of Civil Procedure governs summary judgment and is made applicable to adversary proceedings by Rule 7056 of the Federal Rules of Bankruptcy Procedure. Rule 56(c) makes summary judgment appropriate when, after consideration of the record, the court determines that "there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." In determining whether any genuine issues of material fact exist, the court must construe the record liberally in favor of the party opposing the summary judgment. An issue is "genuine" if sufficient evidence exists on each side "so that a rational trier of fact could resolve the issue either way" and "[a]n issue is `material' if under the substantive law it is essential to the proper disposition of the claim." The moving party has the burden of establishing that he or she is entitled to summary judgment. This Court's function is not to weigh the evidence, but merely to determine whether there is sufficient evidence favoring the nonmovant for a finder of fact to return a verdict in that party's favor. Essentially, this Court performs the threshold inquiry of determining whether a trial is necessary. A. Count I — 11 U.S.C. § 727(a)(2)(A)
McKibben v. Chubb, 840 F.2d 1525, 1528 (10th Cir. 1988) (citation omitted).
Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 670 (10th Cir. 1998).
Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).
Id. at 249.
Id. at 250.
In a section 727(a)(2)(A) action, the creditor must show that the debtor, with intent to hinder, delay or defraud a creditor, transferred or concealed property of the debtor within one year preceding the filing date of the bankruptcy petition.
1. Mr. Wurtz
The plaintiff acknowledges that the aforementioned transfers made by Mr. Wurtz did not occur within the year preceding his bankruptcy filing. However, the plaintiff suggests two equitable doctrines that might, if applicable, bring the transfers within the time limitations prescribed by section 727(a)(2)(A).
First, the plaintiff suggests that the involuntary petition it filed against Mr. Wurtz should somehow equitably toll the one-year "look back" period provided by section 727(a)(2)(A). However, the plaintiff has not provided and the Court cannot otherwise find any legal authority supporting the proposition that a party can derive an equitable benefit as a result of its own conduct. The plaintiff chose to file an involuntary petition against Mr. Wurtz and the subsequent dismissal for lack of subject matter jurisdiction should not affect this voluntary proceeding. The plaintiff should not equitably benefit from its lack of foresight in estimating the consequences of its own actions.
Second, the plaintiff suggests that the various transfers executed by Mr. Wurtz operate as a "continuing concealment." The "continuing concealment" doctrine allows a court to deny discharge if a debtor transfers property outside the one-year limitation prescribed by section 727(a)(2)(A) and the transfer is concealed or beneficial interests are retained during the prescribed one-year period. For a creditor to take advantage of the doctrine, it must demonstrate that the debtor transferred title, but continued to retain the benefits of ownership. However, where a transfer is absolute, even if it defrauds the creditors, the transfer cannot bar discharge if it is made more than one year prior to the filing of the bankruptcy.
In re Essres, 139 B.R. 958, 961 (D. Colo. 1992).
Id. (citing In re Serafini, 113 B.R. 692, 694 (D. Colo. 1990), quoting Thibodeaux v. Olivier ( In re Olivier), 819 F.2d 550, 553 (5th Cir. 1987)).
In re Womble, 289 B.R. 836, 846 (Bankr. N.D. Tex. 2003).
The payouts gleaned from the record occurred more than one year prior to the filing of Mr. Wurtz's voluntary bankruptcy and, as discussed, this one-year period was not tolled by the involuntary bankruptcy filed by plaintiff against the debtors. However, the argument that the one-year look-back period did not begin to run because of continuing concealment is not necessarily foreclosed. Plaintiff conducted a post-judgment Debtor's Examination of Mr. Wurtz on June 19, 2001. Mr. Wurtz's responses in the Debtor's Examination were vague and elusive.
The plaintiff does create a sufficient suspicion so that this Court will not grant summary judgment on this Count as to Mr. Wurtz. Allegations of fraud are not ordinarily susceptible to disposition on a motion for summary judgment. This Court wishes to hear the testimony and to review all of the documents pertinent to Mr. Wurtz's finances and, in particular, those associated with the sale of the Building on May 2, 2001, and the distribution of the proceeds thereof. For instance, the Partnership notes that were owed to Mr. Wurtz personally, along with Mr. Wurtz's Partnership interest, were transferred to QuarterBack approximately two months prior to the closing of the sale of the Building. However, the proceeds from the sale of the Building and liquidation of the Partnership interest were not all paid to QuarterBack at closing. Mr. Wurtz alleges that QuarterBack was established for tax purposes, but does not provide a legal and factual explanation as to exactly what tax purpose drove the establishment of QuarterBack. This argument is belied by the payment of the majority of the sale proceeds to non-QuarterBack payees.
There is an issue with regard to Mr. Wurtz's inconsistent testimony in his Debtor's Examination and various depositions. The June 19, 2001, Debtor's Examination was held in Johnson County approximately 45 days after the closing of the sale of the Building and the distribution of the proceeds. The $196,995.42 distribution was paid to satisfy Mr. Wurtz's loans and capital contributions to the Partnership. These were monies owed Mr. Wurtz prior to the closing on the sale for the notes dating back to 1994, 1995, and 1996. Yet, Mr. Wurtz did not make any disclosure of these monies owed when his deposition was taken on July 28, 2000. (Debtor's Exam. Tr. 11-12.) Mr. Wurtz was receiving rental income of $2,000.00 per month, but did not disclose same prior to the Debtor's Examination, incorrectly indicating that a $2,000.00 per month payment on account of a lease was not income because it was paid to the mortgagee. (Debtor's Exam. Tr. 9-10.) Mr. Wurtz alleges that $47,000.00 from the proceeds was paid to the IRS on account of taxes; this Court has yet to view any evidence of said payment. In some depositions, Mr. Wurtz refers to $15,000.00 that been set aside with his counsel (Hebert Schenk), but in other testimony indicates that this sum is $20,000.00; this Court is unable to reconcile this discrepancy. (Debtor's Exam. Tr. 9.) Mr. Wurtz emphasized that the money distributed at the closing was not his money, but was used to repay other obligations, including approximately $95,000.00, to repay a loan he owed to his Pension Plan. However, the post-closing distribution of funds from the Pension Plan, as well as the payout of funds from the QuarterBack account, indicate that Mr. Wurtz controlled the disposition of the proceeds. This Court does not have all of the salient check copies, but one day after the closing, Mr. Wurtz paid $45,000.00 into an IRA account at Southwest Securities from his Pension Plan. An additional $15,000.00 was paid to Southwest Securities from the Pension Plan on May 19, 2001, as well as the payoff of a college loan for Mr. Wurtz's son in the amount of $6,082.00. The QuarterBack Firstar account received total deposits of $71,445.71 during May 2001 and by June 5, 2001, the account balance was $0.00. This Court is unable to ascertain the disposition of all of the funds in this account. Yet during the Debtor's Examination, Mr. Wurtz insisted, with reference to the $95,000 Pension Plan deposit, "That's not money that I had." (Debtor's Exam. Tr. 12:11.) Additionally, he stated that, "I didn't see the money. It went to my pension plan I had to borrow-we had to buy this building after it went bankrupt." (Debtor's Exam. Tr. 12:20-22.) Yet, the evidence demonstrates that as early as one day after the closing, Mr. Wurtz was shifting significant portions of the $95,000.00 that was paid to his Pension Plan, as well as the approximately $71,000.00 that was paid to QuarterBack. Mr. Wurtz continued his claim that he was destitute, "No, there's no money in there [QuarterBack], Larry, zero. $47,000 goes to taxes, $15,000 was for you guys, and the rest of it went to lawyers. That's the bottom line. I can't say it any simpler than that. I wish I had some money. I wouldn't be filing for bankruptcy if I did." (Debtor's Exam. Tr. 18:24-25 to 19:1-4.) Mr. Wurtz asserted that only Robert Winsky, his Pension Plan, Dr. Tadano, Hebert Schenk, and Wayne Clauser, were paid at closing. (Debtor's Exam. Tr. 30:12-19.) In fact, Mr. Wurtz stated, "That's all there was. That's all the money. That's sad." ( Id.) With regard to the $69,000.00 distribution that went to QuarterBack, Mr. Wurtz stated, "I don't have it. The lawyer has it. It's for the taxes, $47,000. I don't have it." (Debtor's Exam. Tr. 33:11-16.) Incongruently, up until two weeks prior to the Debtor's Examination, Mr. Wurtz was drafting checks out of the QuarterBack account, which was funded with the $69,000.00 Partnership distribution. With regard to the $95,000.00 Pension Plan distribution, Mr. Wurtz stated, "I don't know where it is. I don't have any record of it." (Debtor's Exam. Tr. 41:7-8.)
Additionally, the Debtor's Examination reflects the following dialogue:
Q. So Mr. Hebert is the one who has been responsible for handling the $95,000 since the closing of the building?
A. Yeah. He's a bankruptcy lawyer that's getting everything ready for bankruptcy.
Q. And he will know where the money has been invested, in what account or where it's located at?
A. Right.
Q. And that's not something you know as we sit here today?
A. I don't know where, no.
(Debtor's Exam. Tr. 41:22-25 to 42:1-8.) Again, within the 45 days prior to the Debtor's Examination, Mr. Wurtz had written two checks aggregating $60,000.00 to Southwest Securities from the Pension Plan account and had also paid off a college loan for his son Thomas in the amount of $6,082.00. It is not credible that 30-45 days after these payments he would not have any recollection as to the location or use of the funds. Additionally, approximately $71,000.00 had been paid out of the QuarterBack account within a 30-day period, including $18,000.00 to Mr. Wurtz's son Joseph and other smaller payments to family members.
Although the Court is not privy to all of the checks that were written on the Firstar account, it is obvious that Mr. Wurtz was not forthcoming with accurate information during his Debtor's Examination less than 45 days after he had personally signed checks well in excess of $100,000.00 from various accounts. No specificity is provided in his testimony with regard to the many distributions even though they were made just prior to the Debtor's Examination. It may be more than a coincidence that all of the distributions were conducted prior to the Debtor's Examination. For instance, the QuarterBack account was drained of cash approximately two weeks prior to the Debtor's Examination. Considering the sums and the numerous entities involved, including family members as payees, plaintiff should be afforded the opportunity to demonstrate whether the continuing concealment doctrine brings any transfers within the one-year limitation period. It should be emphasized that while this Court's review of the record does not reflect that Mr. Wurtz is a steward of frank disclosure, that does not necessarily establish continuing concealment, and the Court has yet to glean any evidence from its review of the limited record that such did occur. What is also not revealed are any payments, transfers or actions that occurred within the 12 months just preceding the bankruptcy. This information is a focus of the Court's interest.
2. Mrs. Wurtz
The plaintiff does not allege and the Court does not find that Mrs. Wurtz transferred or concealed her property with the intent to hinder, defraud, or delay any creditor. Accordingly, section 727(a)(2)(A) is inapplicable with regard to Mrs. Wurtz and the Court shall accordingly enter judgment in her favor on Count I of the plaintiff's complaint.
B. Count IV — Kansas Uniform Fraudulent Transfers Act
The defendants allege that the plaintiff is not the proper party to pursue an action under the Kansas Uniform Fraudulent Transfers Act and that, as a result, Count IV should be dismissed for want of subject matter jurisdiction. However, this Court approved the Chapter 7 trustee's assignment of his right to pursue an action under the Kansas Uniform Fraudulent Transfers Act to the plaintiff. The Court finds that the plaintiff has standing to pursue its claim under the Kansas Uniform Fraudulent Transfers Act and that, accordingly, the defendants are not entitled to summary judgment on Count IV of the plaintiff's complaint.
Conclusion
It is this Court's impression after review of the record, that dismissal of Count I as to Mr. Wurtz is inappropriate. It appears that Mr. Wurtz, during his pre-bankruptcy deposition and Debtor's Examination, provided purposely vague and imprecise answers in response to questions regarding his assets and liabilities. Since the transactions in question occurred more than one year prior to the filing of Mr. Wurtz's bankruptcy, they would not facially appear as a bar to his discharge under Count I of the complaint. However, this Court is interested with regard to any actions undertaken by Mr. Wurtz in the 12 months just preceding the filing of his bankruptcy, the possibility that continuing concealment may have tolled the running of the 12-month look-back period, or whether another theory of equitable tolling, aside from that urged by the plaintiff, may apply. It is impossible for this Court to enter judgment as to Mr. Wurtz with regard to Count I absent an evidentiary hearing.
IT IS THEREFORE ORDERED that summary judgment on Count I of the plaintiff's complaint is entered in favor of the defendant Mrs. Wurtz but denied as to Mr. Wurtz.
IT IS FURTHER ORDERED that summary judgment on Count IV of the plaintiff's complaint is denied.
A judgment reflecting this ruling will be entered on a separate document in compliance with Fed.R.Bankr.P. 9021 and Fed.R.Civ.P. 54 only after the adjudication of the claims, rights and liabilities of all the parties.
The relief described hereinbelow is SO ORDERED.