Opinion
NOT FOR PUBLICATION
Argued and Submitted at Seattle, Washington: November 16, 2006
Appeal from the United States Bankruptcy Court for the Western District of Washington. Honorable Thomas T. Glover, Bankruptcy Judge, Presiding. Bk. No. 01-10030. Adv. No. 02-01071.
Before: PAPPAS, MONTALI and SMITH, Bankruptcy Judges.
MEMORANDUM
The bankruptcy court determined that the transfer of $7,500 from debtors to an insider-creditor made within a year of filing their petition when they were insolvent was an avoidable preference pursuant to § 547(b) , and thereafter denied the insider-creditor's motion for reconsideration. The creditor appealed both rulings. We AFFIRM.
Unless otherwise indicated, all chapter, section and rule references are to the Bankruptcy Code, 11 U.S.C. § § 101-1330, and to the Federal Rules of Bankruptcy Procedure, Rules 1001-9036, as enacted and promulgated prior to the effective date (October 17, 2005) of The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. 109-8, Apr. 20, 2005, 119 Stat. 23.
FACTS
Debtors Theodore Jacob Prince (" Ted") and Donna Marie Prince (" Donna") filed a petition for relief under chapter 7 of the Bankruptcy Code on January 3, 2001. Virginia Burdette (" Trustee") was appointed trustee.
On October 11, 1999, Judy Jones (" Appellant"), Ted's sister, loaned Debtors $7,000. On October 12, 1999, Jerry Jones (" Jerry"), Appellant's husband and Debtors' brother-in-law, loaned Debtors $8,000. Debtors paid Jerry $8,500 on May 15, 2000; the check cleared the bank on May 19, 2000. Debtors paid Appellant $7,500 on June 12, 2000; that check cleared on June 26, 2000 (" Transfer Date").
The dates the checks cleared the bank are significant here because, for purposes of determining whether an avoidable preference has occurred, the transfer is deemed to take place on the date the check is honored by the bank. Barnhill v. Johnson, 503 U.S. 393, 394, 112 S.Ct. 1386, 118 L.Ed.2d 39 (1992).
On January 28, 2002, Trustee commenced an adversary proceeding against Appellant and Jerry to recover the loan payments as preferential transfers pursuant to § § 547(b) and 550. The adversary proceeding came on for trial in the bankruptcy court on August 14, 2003. Based principally on the testimony of Trustee's accountant, the bankruptcy court determined that the Debtors were insolvent on and after May 14, 2000. Thus, the bankruptcy court ruled that the payments to Appellant and Jerry were avoidable preferences. Findings of Fact, Conclusions of Law and Judgment were entered on December 19, 2003.
Appellant and Jerry conceded that they are relatives and insiders as to Debtors as defined in § § 101(45) & (31).
Appellant, on her own behalf and that of Jerry, appealed the Judgment on January 2, 2004. The appeal was heard in the U.S. District Court for the Western District of Washington. During the course of the appeal, Trustee conceded that the transfer to Jerry was made when the Debtors were solvent. Thus, the district court reversed the bankruptcy court's determination that the transfer to Jerry was an avoidable preference.
The district court also concluded that Trustee's accountant made an error regarding a stock payment received by Debtors after the payment to Jerry, but before the transfer to Appellant, and that the bankruptcy court had relied on that error in deciding that Debtors were insolvent as of the Transfer Date. Therefore, the district court remanded the action to the bankruptcy court for additional proceedings to determine whether the transfer to Appellant on the Transfer Date was a preference and avoidable.
On February 6, 2006, the bankruptcy court conducted another trial regarding the alleged preferential transfer to Appellant. Trustee presented the testimony of Michael Peters, a realtor, who addressed the value of Debtors' real property. Appellant called Ted as a witness, who testified, among other things, that the bankruptcy court should include as part of his assets on the Transfer Date certain items of personal property. He also testified about the existence and value of his tools and inventory.
In its oral ruling made at the conclusion of the trial, the bankruptcy court declined to adopt the opinion of Trustee's witness that the value of Debtors' real property was $225,000 on the Transfer Date. Instead, the court determined that the value was $245,000, although the court noted that there was some justification for the higher valuation proposed by Appellant of $265,000. Tr. Hr'g 46:22 - 47:21. After trial, Appellant requested that the bankruptcy court review these numbers. The bankruptcy court's Supplemental Findings of Fact and Conclusions of Law, entered April 10, 2006, apparently agreed with Appellant, and found that " the value of the Debtors' residence on June 26, 2006 was $265,000."
Appellant was considerably less successful in persuading the bankruptcy court to accept the testimony of Ted regarding the various personal property assets and values:
The debtor's testimony concerning inventory is, at best, murky. He doesn't have any idea of what the inventory is. We go through this stuff about it being stolen later on. He first testified that normally it's not customary within the business that he was doing to have inventory. Then he testified that some of it was sold, and then he testified that it was stolen. None of this I find to be credible evidence. And I'm not going to allow anything for inventory. As far as personal property is concerned, the debtors' listed the amount that he has [on his schedules]. He doesn't schedule [the furniture] anyway, but even if he did, there's a reduction in value. The whole thing with the tools is a mystery to me. I know he says he paid $1300 for tools. Again, his evidence concerning what he had, his personal property knowledge is that he had a physical condition involving a stroke, he hasn't got a clue. And so I simply cannot allow that.
Tr. Hr'g 47:22 - 48:16.
The bankruptcy court's Supplemental Findings of Fact and Conclusions of Law summarized the facts regarding the insolvency issue as follows:
o On the Transfer Date, the Debtors' liabilities totaled $282,035.99, consisting of $62,990.34 in unsecured debt and $219,045.65 in secured debt. o The value of Debtors' real property on the Transfer Date was $265,000.00. The value of cash in Debtors' checking accounts on that date was $13,279.86. The value of Debtors' personal property on the Transfer Date was $3,120.00. The bankruptcy court concluded that Ted's testimony regarding the value of inventory and tools was not credible. Thus, the court determined that the total value of Debtors' assets on the Transfer Date was $281,399.86. o On the Transfer Date, Debtors' liabilities exceeded their assets by $616.13 and Debtors were insolvent on that date.
The Panel notes that the difference between total liabilities of $282,035.99 and total assets of $281,399.86 is $636.13, a difference of $20 from the $616.13 stated in the Supplemental Findings of Fact. We believe this is a typographical error and harmless error on three grounds. First, we have examined the record and all other values listed for assets and liabilities are correct. Second, at the hearing, the court correctly calculated the difference at $636.13 (after allowing for an adjustment in the real estate value). Tr. Hr'g 43:22. Third, a $20 error in computation of insolvency is immaterial when the liabilities exceed assets by over $600; to the extent that it has any effect at all on the computation, it increases the amount of insolvency.
Based upon these findings of fact and other evidence, the bankruptcy court concluded that the payment to Appellant was an avoidable preference. Tr. Hr'g 49:5-6. A judgment was entered on April 10, 2006.
On April 19, Appellant filed a motion for reconsideration pursuant to Fed.R.Bankr.P. 9023 and Fed.R.Civ.P. 59. Appellant challenged the bankruptcy court's findings and conclusions concerning the personal property, and in particular, its refusal to consider the value of the tools and inventory allegedly in Debtors' possession on the Transfer Date. The bankruptcy court denied the motion by order entered April 27, 2006. Appellant filed this timely appeal of the judgment and the order denying the motion for reconsideration on May 2, 2006.
In the reconsideration motion and in this appeal, Appellant also faults the bankruptcy court for its failure to reduce Debtors' liabilities by $500 based upon a check allegedly sent by Debtors to Key Bank on June 16, 2000, which cleared Debtors' account on June 19, 2000. However, whether such a payment should be credited to Debtors' liabilities will not impact the ultimate resolution of the issues, since a reduction of debts in excess of $617 would be required to render the Debtors solvent. Instead, the critical issues on appeal involve whether Debtors' assets were properly valued by the bankruptcy court.
JURISDICTION
The bankruptcy court had jurisdiction pursuant to 28 U.S.C. §§ 1334 and 157(a) and (b)(2)(F). We have jurisdiction pursuant to 28 U.S.C. § 158(b).
ISSUES
1. Whether the bankruptcy court clearly erred in finding that Debtors were insolvent at the time of the transfer of $7,500 to Appellant.
2. Whether the bankruptcy court abused its discretion in denying Appellant's motion for reconsideration.
STANDARD OF REVIEW
Whether a debtor is insolvent for purposes of § 547 is a question of fact. Sierra Steel, Inc. v. Totten Tubes, Inc. (In re Sierra Steel, Inc.), 96 B.R. 275 (9th Cir. BAP 1989). We review the bankruptcy court's findings of fact for clear error and we must give due regard to the opportunity of the bankruptcy court to judge the credibility of the witnesses. FED. R. BANKR. P. 8013; Anderson v. City of Bessemer, 470 U.S. 564, 573, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985); Welther v. Donnell (In re Oakmore Ranch Mgmt.), 337 B.R. 222 (9th Cir. BAP 2006). Review under the clearly erroneous standard is significantly deferential, requiring a " definite and firm conviction that a mistake has been committed." Easley v. Cromartie, 532 U.S. 234, 242, 121 S.Ct. 1452, 149 L.Ed.2d 430 (2001).
The denial of a motion for reconsideration is reviewed for an abuse of discretion. Nunes v. Ashcroft, 348 F.3d 815 (9th Cir. 2003).
DISCUSSION
I.
The bankruptcy court did not clearly err in finding that Debtors were insolvent at the time of the transfer of $7,500 to Appellant.
The bankruptcy court concluded that the transfer by Debtors to Appellant was an avoidable preference. Appellant argues that the bankruptcy court clearly erred in its finding, required by § 547(b)(3), that Debtors were insolvent on the Transfer Date. Appellant contends the bankruptcy court incorrectly determined the value of the items of personal property allegedly owned by Debtors was $3,120.00, the value Debtors listed in their schedules. In particular, Appellant asserts that the court erred as to three specific findings of fact: (1) That Debtors had no inventory on the Transfer Date; (2) that the tools that Debtors purchased for $1,300 on May 11, 2000, did not exist on the Transfer Date; and (3) that the furniture that Debtors apparently purchased from J.C. Penney on June 14, 2000, was not worth the purchase price.
Section 547(b), specifying the elements of an avoidable preference, provides:
Under § 547(g), Trustee was required to prove that Debtors were insolvent on the Transfer Date. Section 101(32) defines " insolvent" as a " financial condition such that the sum of [the debtor's] debts is greater than all of such [debtor's] property, at a fair valuation, exclusive of (i) property transferred, concealed, or removed with intent to hinder, delay, or defraud such [debtor's] creditors; and (ii) property that may be exempted from property of the estate under section 522 of this title." This is the so-called " balance sheet test of insolvency." Merkel v. Comm'r, 192 F.3d 844, 855 (9th Cir. 1999).
Under § 547(f), a debtor is presumed to be insolvent during the 90 days immediately preceding the date of the filing of the petition. Since the transfer to Appellant occurred more than 90 days before Debtors filed their petition, this statutory presumption was unavailable to Trustee.
In this case, Trustee has not alleged Debtors made any fraudulent transfers of property, nor does she challenge Debtors' exemptions. Thus, the bankruptcy court need only compare the value of Debtors' assets, net of exemptions, to the amount of their liabilities on the Transfer Date to determine whether Debtors were insolvent. We have reviewed the evidence and transcript of the June 6, 2006 trial, and we conclude that the bankruptcy court did not clearly err in finding, based upon the conflicting evidence, that Debtors were insolvent.
In making its findings, the bankruptcy court could consider Debtors' schedules, which were admitted into evidence without objection. On their schedules, Debtors listed a total of $3,120.00 in personal property assets, but they did not list any tools or inventory, nor did they state that any tools or inventory had been lost or stolen. The schedules also did not list the furniture allegedly purchased from J.C. Penney, which Debtors claimed to still possess on the date of trial. Because they were executed by Debtors under penalty of perjury, the schedules could properly be considered by the bankruptcy court as evidence of Debtors' insolvency. See In re Mohring, 142 B.R. 389, 392 (Bankr. E.D. Cal. 1992) (" Since the schedules and lists are executed under penalty of perjury, they may be treated as affidavits that may be used under Federal Rule of Civil Procedure 43(e) for any purpose permitted by the Federal Rules of Evidence.").
On the other hand, the bankruptcy court heard testimony from Ted regarding the existence and value of the tools, inventory, and furniture. But the court characterized Ted's testimony regarding the inventory as " murky" and noted that " [h]e doesn't have any idea of what the inventory is." Tr. Hr'g 47:22-23. The court described the tool issue as a " mystery to me . . . and so I simply cannot allow it." Tr. Hr'g 48:11-16. Concerning the furniture, the bankruptcy court found that no furniture was listed in Debtors' schedules, even though Debtors still claimed to possess the furniture on the hearing date, and that, in any case, used furniture would not be worth the purchase price of new furniture as alleged by Appellant. Tr. Hr'g 48:7-11. The court summed up Ted's testimony as not credible. This credibility finding is entitled to special deference by the appeals court. Anderson v. City of Bessemer, 470 U.S. 564, 573, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985).
And contrary to Appellant's contention, the bankruptcy court did not specifically find that either the inventory or tools did not exist. Rather, the court found that Ted's testimony regarding the tools and inventory was not credible. No other evidence was offered to the bankruptcy court at trial to show that Debtors owned any tools or inventory on the Transfer Date.
There is some indication that the court had a statement in the record that Debtors had $5,000 in inventory on or around the Transfer Date. However, testimony showed that that statement was prepared over two years after the Transfer Date by a bookkeeper without direct knowledge of the inventory.
" Where there are two permissible views of the evidence, the factfinder's choice between them cannot be clearly erroneous." United States v. Elliott, 322 F.3d 710, 714 (9th Cir. 2003); SEC v. Rubera, 350 F.3d 1084, 1094 (9th Cir. 2003)(holding that if the trial court's account of the evidence is plausible in light of the record viewed in its entirety, the appeals court may not reverse even though convinced that had it been sitting as the trier of fact, it would have weighed the evidence differently). Given the conflict in the evidence, the bankruptcy court did not clearly err when it decided to believe the information in the schedules rather than Ted's testimony.
II.
The bankruptcy court did not abuse its discretion in denying Appellant's motion for reconsideration.
Reconsideration is appropriate if the trial court (1) is presented with newly discovered evidence, (2) committed clear error or the initial decision was manifestly unjust, or (3) if there is an intervening change in controlling law. Nunes v. Ashcroft, 348 F.3d 815, 815 (9th Cir. 2003). Here, the bankruptcy court did not abuse its discretion in declining to reconsider its decision.
Appellant, in both the reconsideration motion and in this appeal, challenges the bankruptcy court's findings on the basis of " manifest error." In the motion for reconsideration, she also points to " newly discovered evidence, " specifically invoices, " that were not previously provided in discovery [that] clearly shows that [Ted's] testimony was credible [in] that he had at least $6850.00 in inventory on June 26, 2000."
To establish that a bankruptcy court abused its discretion in denying a motion for reconsideration based upon newly discovered evidence, the movant must show that: " (1) the evidence was discovered after trial, (2) the exercise of due diligence would not have resulted in the evidence being discovered at an earlier stage and (3) the newly discovered evidence is of such magnitude that production of it earlier would likely have changed the outcome of the case." Far Out Prods., Inc. v. Oskar, 247 F.3d 986, 993 (9th Cir. 2001) (citing Defenders of Wildlife v. Bernal, 204 F.3d 920, 929 (9th Cir. 2000)). Here, the invoices were not " discovered after trial, " but instead were apparently in Debtors' possession. That Debtors acknowledged that they had not provided the invoices in discovery does not obviate the requirement that Appellant show she diligently attempted to obtain the invoices prior to trial. And finally, there is no indication that the information in the invoices, discovered so late in the case, would have changed the outcome of the trial. Even had the invoices been offered at trial, the bankruptcy court could have declined to accept them in preference to the information in Debtors' schedules.
The remaining assertions in the motion for reconsideration merely rehash Appellant's arguments disagreeing with the bankruptcy court's assessment that Ted's testimony was not credible. As noted above, the bankruptcy court was entitled to assign appropriate weight to the conflicting evidence in deciding whether Debtors were insolvent.
In sum, nothing in the motion for reconsideration shows there was newly discovered evidence, that the bankruptcy court committed clear error or that its ruling was manifestly unjust, nor was there any intervening change in the law. Thus, we conclude that the bankruptcy court did not abuse its discretion in denying the motion for reconsideration.
CONCLUSION
For all the above reasons, we AFFIRM the bankruptcy court's April 10, 2006, judgment and April 27, 2006, order denying reconsideration of the motion.
(b) Except as provided in subsection (c) of this section, the trustee may avoid any transfer of an interest of the debtor in property (1) to or for the benefit of a creditor; (2) for or on account of an antecedent debt owed by the debtor before such transfer was made; (3) made while the debtor was insolvent; (4) made (A) on or within 90 days before the date of the filing of the petition; or (B) between ninety days and one year before the date of the filing of the petition, if such creditor at the time of such transfer was an insider; and (5) that enables such creditor to receive more than such creditor would receive if (A) the case were a case under chapter 7 of this title [11 USCS § § 701 et seq.]; (B) the transfer had not been made; and (C) such creditor received payment of such debt to the extent provided by the provisions of this title.
Appellant apparently concedes, or at least has not challenged on appeal, that all other requirements for a preference have been established in this action, other than that Debtors were insolvent.