WILLIAM T. THURMAN, Bankruptcy Judge.
The matter before the Court is the Motion for Summary Judgment filed by the Defendant, Marlese Christensen. David West, the Chapter 7 Trustee and Plaintiff, commenced this adversary proceeding by filing a complaint on July 11, 2013. In that complaint, the Plaintiff seeks to avoid, and recover for the benefit of the estate, an alleged fraudulent or preferential transfer that Louis Christensen, the Debtor in the main bankruptcy case, made to the Defendant in January 2011, approximately six months before the Debtor filed his bankruptcy petition.
The Court conducted a hearing on the Defendant's motion on April 4, 2014, at which hearing David R. Williams appeared on behalf of the Plaintiff and Brent D. Wride appeared on behalf of the Defendant. The Court then took the matter under submission. After carefully considering the parties' briefs and the arguments of counsel, and after conducting an independent review of applicable law, the Court issued its ruling from the bench on April 14, 2014, making its findings of fact and conclusions of law on the record. The Court expressly reserved the right to issue a written memorandum decision memorializing and supplementing that oral ruling without changing its judgment. In accordance with that ruling, the Court now issues the following Memorandum Decision, which constitutes the Court's findings of fact and conclusions of law under Federal Rule of Civil Procedure 52, made applicable to this matter by Federal Rules of Bankruptcy Procedure 9014 and 7052.
The Court's jurisdiction over this adversary proceeding is properly invoked under 28 U.S.C. § 1334(b) and § 157(a) and (b). The Plaintiff's complaint seeks to avoid and recover a fraudulent or preferential transfer, making this a core proceeding under 28 U.S.C. § 157(b)(2)(F) and (H). Venue is appropriately laid in this District under 28 U.S.C. § 1409, and notice of the hearing was properly given in all respects.
Before addressing the Defendant's motion, the Court will address two issues related to Local Rule 7056-1. The first is the timeliness of the Plaintiff's memorandum in opposition. While the Defendant did not raise the issue at oral argument, she stated in the Notice of Hearing on Defendant's Unopposed Motion for Summary Judgment that the Plaintiff had not filed a timely opposition to the motion for summary judgment.
The Defendant's argument would be correct if the Court were operating under the version of the Local Rules in effect before December 1, 2013. Under the prior version of the Local Rules, a party opposing a motion for summary judgment had twenty-one days after service of the motion to file and serve a memorandum in opposition.
The Plaintiff's opposition is not untimely, however, under the Local Rules that took effect on December 1, 2013, twelve days before the Defendant filed her motion for summary judgment.
The current version of Local Rule 7056-1 provides that the party moving for summary judgment has the burden to set a specific objection deadline and provide notice of that deadline.
The second issue regarding Local Rule 7056-1 is the Plaintiff's contention that the Defendant's motion does not comply with that rule. Again, this was an issue raised in the briefs, but not at oral argument. In particular, the Plaintiff argues that the Defendant's motion does not (1) list each legal element required for the Defendant to prevail; (2) cite to legal authority supporting each stated element; and (3) provide a concise statement of the material facts necessary to meet each element.
A party moving for summary judgment must file a single document that contains the motion and any supporting memorandum.
After examining the Defendant's motion and supporting memorandum, the Court concludes that they do not strictly comply with Local Rule 7056-1. The Court will not penalize the Defendant for non-compliance in this instance, however, as the rule only went into effect on December 1, 2013. The Court only cautions the parties to hew to the rule in the future.
The Court finds that, for the purposes of this motion, the following facts are undisputed:
1. Louis Christensen, the Debtor in the main bankruptcy case, purchased real property at 1706 Bonita Bay Drive in St. George in 2010 (the "St. George Property").
2. At the time of the purchase, the Debtor was married to the Defendant.
3. In March 2010, the Debtor borrowed $120,000 from Bank of the West and induced the Defendant to offer property in Weber County, which was titled solely in her name, as collateral.
4. In November 2010, the Debtor required the Defendant to move out of their residence, and on December 6, 2010, the Debtor filed a petition for divorce.
5. On December 3, 2010, the Defendant filed a Notice of Interest in the Washington County Recorder's Office, which purported to create a $120,000 lien on the St. George Property, but the precise effect is not clear.
6. On or about January 26, 2011, the Debtor sold the St. George Property to a third party.
7. The Debtor included the sale on Question 10 of his Statement of Financial Affairs, indicating that the St. George Property was sold for $290,000, and that $120,000 of the sale proceeds were used to pay a secured creditor, but his response to Question 10 did not disclose the identity of the secured creditor.
8. The $120,000 sum was paid to the Defendant through Terra Title Company on or about January 27, 2011.
9. The Debtor and Defendant were still married at the time the St. George Property was sold and at the time the Defendant received the $120,000. Subsequent to that time, their divorce became final.
10. On January 27, 2011, the Defendant released her Notice of Interest on the St. George Property by filing a Release of Notice of Interest.
11. On January 29, 2011, the Defendant paid $109,381.05 to Bank of the West in satisfaction of the Debtor's loan.
12. The Defendant incurred several thousand dollars in bank fees and attorney's fees in connection with that payment.
13. The Debtor filed a voluntary petition under chapter 7 on July 22, 2011.
Under Federal Rule of Civil Procedure 56(a), made applicable to adversary proceedings by Federal Rule of Bankruptcy Procedure 7056, the Court is required to grant a motion for 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 moving party bears the burden to show that it is entitled to summary judgment,
When considering a motion for summary judgment, the Court views the record in the light most favorable to the nonmoving party,
The Plaintiff's first claim for relief alleges actual fraud under 11 U.S.C. § 548(a)(1)(A).
In general, "issues of motive and intent are ill-suited for resolution on summary judgment."
The Plaintiff's second claim for relief alleges constructive fraud under § 548(a)(1)(B). This provision is similar to § 548(a)(1)(A) in that it allows a trustee to avoid any transfer of an interest of the debtor in property where the debtor made the transfer on or within two years prior to the date the petition was filed. But unlike § 548(a)(1)(A), this provision does not have the element of intent. Instead, a party seeking to establish a claim under § 548(a)(1)(B) "must demonstrate a transfer or obligation was incurred for less than reasonably equivalent value and then must show one of the four conditions set forth in subsection (B)(ii) applies."
The point of contention between the parties on summary judgment is whether the Debtor received reasonably equivalent value in return for the $120,000 he paid to the Defendant. The Bankruptcy Code does not define "reasonably equivalent value," but does provide that "value" means "property, or satisfaction or securing of a present or antecedent debt of the debtor, but does not include an unperformed promise to furnish support to the debtor or to a relative of the debtor."
The Plaintiff argues that the Debtor did not receive reasonably equivalent value because he paid $120,000 to the Defendant, but the debt owed to Bank of the West was only $109,381.05, meaning the Debtor received $10,618.95 less than he paid.
The Court concludes that there is a genuine dispute as to whether the transfer was for reasonably equivalent value, and this issue will require further presentation of facts. Therefore, the Defendant's motion for summary judgment is denied as to the Plaintiff's § 548(a)(1)(B) claim.
The Plaintiff's third and fourth claims for relief are under § 544 and Utah Code Annotated § 25-6-5 and 25-6-6. "Section 544(b)(1) allows a trustee to step into the shoes of an actual creditor who could have avoided the transfer outside bankruptcy using a state-law cause of action."
For the same reasons that the Court denied the Defendant's motion for summary judgment as to the § 548(a)(1)(A) and (a)(1)(B) claims, the Court denies it with regard to the claim under § 25-6-5. There are still genuine disputes of material fact regarding the Debtor's intent and the issue of reasonably equivalent value.
Section 25-6-6 provides:
The Court concludes that there are genuine disputes of material fact regarding the elements of the Plaintiff's claim under § 25-6-6, and the Court accordingly denies the Defendant's motion for summary judgment as to that claim.
The Plaintiff's fifth claim for relief alleges a preferential transfer under § 547, which allows a trustee to avoid any transfer of an interest of the debtor in property if, inter alia, the transfer occurred on or within ninety days before the date the petition was filed or, if made to an insider of the debtor, within one year before the date the petition was filed.
The transfer at issue in this case occurred on or about January 27, 2011, which was outside of the ninety-day window, but within one year before the Debtor filed his bankruptcy petition. Therefore, the Trustee can only avoid the transfer if the Defendant qualifies as an insider. There are two types of insiders: per se or statutory insiders, who are specifically mentioned in the statute, and non-statutory insiders, who, despite not being mentioned in § 101(31), nevertheless fall within the ambit of that subsection because they have a "sufficiently close relationship with the debtor that [their] conduct is made subject to closer scrutiny than those dealing at arm's length with the debtor."
The Defendant first argues that the Plaintiff's § 547 claim must fail as a matter of law because the Defendant was not an insider. In support of this argument, the Defendant asserts that she and the Debtor were in an adversarial relationship at the time of the transfer and she did not have the ability to exercise undue influence over the Debtor.
These arguments regarding the adversarial nature of the relationship and the extent of the Defendant's influence over the Debtor are germane to determining whether a transferee may be considered a non-statutory insider despite not meeting the per se definition. The criteria courts employ to assist them in this determination include "the closeness of the parties and the degree to which the [transferee] is able to exert control or influence over the debtor,"
The Defendant's arguments, however, are not relevant to determining whether a transferee is a per se insider, one "whose affinity or consanguinity gives rise to a conclusive presumption that the individual or entity commands preferential treatment by the debtor."
Here, it is undisputed that the Defendant was married to the Debtor at the time of the transfer, which, according to the Plaintiff, would make her an insider per se. Therefore, the Court must first address whether the Defendant meets the statutory definition of an insider. Where the debtor is an individual, an insider includes a "relative of the debtor,"
The Defendant's argument is that spouses are related by marriage, but not by affinity, thereby excluding a debtor's spouse from insider status. The Defendant cites Black's Law Dictionary for the proposition that "affinity" means a "relation that one spouse has to the blood relatives of the other spouse." The Defendant further asserts that if Congress had wanted to include a debtor's spouse in the definition of relative, it should have provided that relatives are those related by consanguinity, affinity, or marriage. The Defendant argues that state legislatures know the distinctions among the three categories, but Congress left a hole in the Bankruptcy Code when it left out "marriage" from the definition of "relative."
The Defendant also cites In re Busconi,
The determination of whether a debtor's spouse is an insider of the debtor requires this Court to engage in statutory interpretation, whose core principle demands that courts look at the language of the statute at the outset.
"When a statute does not define a term, [courts] typically give the phrase its ordinary meaning."
First, the text of § 101(45) defines a relative as an "individual related by affinity or consanguinity within the third degree as determined by the common law, or individual in a step or adoptive relationship within such third degree."
Second, the advisory committee note to Rule 5002, which prescribes restrictions on the appointment of relatives, supports the interpretation that the common law supplies the definition for what "within the third degree" means, but not for what affinity means. After quoting the text of what was then § 101(34), which was subsequently redesignated as § 101(45), the advisory committee note lays out which persons are related by the first, second, and third degree under the common law system.
Accordingly, the Court concludes that it is appropriate to give affinity its ordinary meaning. While Black's does define affinity as "the relation that one spouse has to the blood relatives of the other spouse," it also defines it as "relationship by marriage" and "any familial relation resulting from a marriage."
Therefore, while the Defendant's argument that relationship by affinity does not include one's spouse finds support in Black's, the very source on which the Defendant relies also offers contrary authority. Based upon the conflicting definitions found in the above-described dictionaries, the Court concludes that "affinity," as used in § 101(45), is capable of being understood by reasonably well-informed persons in two or more different senses, and therefore ambiguous. The Court must look beyond the plain meaning of the statutory text to determine Congress's intent.
The legislative history on the Bankruptcy Reform Act of 1978 contains a statement on point. The House and Senate reports provide that "a former spouse is not a relative, but if, [for purposes of § 547], the transferee was a spouse of the debtor at the time of the transfer sought to be avoided, then the transferee would be [a] relative and subject to the insider rules . . . ."
Moreover, the result that the Defendant urges would produce an absurd result at odds with the legislative purpose of § 547. The term "insider" was new to the Bankruptcy Reform Act of 1978 and it describes "one who has a sufficiently close relationship with the debtor that his conduct is made subject to closer scrutiny than those dealing at arms [sic] length with the debtor."
The Court's conclusion that relationship by affinity includes one's spouse is buttressed by case law. In the case of In re Paschall, the court held that the debtor's then-current spouse was related to the debtor by affinity and therefore an insider of the debtor.
Counsel have acknowledged that these statements made by the Ninth Circuit BAP and the Tenth Circuit are dicta. This Court is not bound by Tenth Circuit dicta, but dicta can be persuasive.
The Court concludes that the Paschall, Schuman, and Kunz cases, in conjunction with the text of the statute, the legislative history underlying the Bankruptcy Reform Act of 1978, and the congressional purpose behind § 547, offer persuasive support for the conclusion that a debtor's spouse is related to the debtor by affinity and therefore a per se insider of the debtor under the Bankruptcy Code. Because the Defendant does not dispute that the Defendant and Debtor were married at the time of the transfer, the Court will deny the Defendant's motion for summary judgment on the issue of whether the Defendant was an insider of the Debtor.
The Defendant also argues that the Plaintiff's § 547 claim must fail because the undisputed facts show that the transfer was not "for or on account of an antecedent debt owed by the debtor" to the Defendant, but rather to Bank of the West.
The Court concludes that there is a genuine dispute regarding whether the transfer was made on account of an antecedent debt owed to Bank of the West or the Defendant. Therefore, the Court will deny the Defendant's motion for summary judgment on this issue as well.
The Defendant has argued that she should be granted summary judgment on the Plaintiff's claims because the Plaintiff cannot prove essential elements of those claims as a matter of law. The Court concludes that there are genuine disputes of material fact regarding those challenged elements, and accordingly, the Court denies the Defendant's motion for summary judgment.