LISA RITCHEY CRAIG, Bankruptcy Judge.
Before the Court is the Motion for Partial Summary Judgment (Doc. 9) (the "Motion"), filed by Dale R.F. Goodman ("Plaintiff"), in her capacity as Chapter 7 Trustee of the estate of Frances Elizabeth Carroll ("Debtor").
This is a core bankruptcy matter, over which this Court has subject matter jurisdiction. See 28 U.S.C. §§ 157(b)(2)(F) & (H); 28 U.S.C. § 1334. For the following reasons the Court grants in part and denies in part the Motion.
Federal Rule of Bankruptcy Procedure ("Rule") 7056 makes Federal Rule of Civil Procedure ("Federal Rule") 56 applicable in adversary proceedings. Fed. R. Bankr. P. 7056. Summary judgment is only proper where "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); see also Hairston v. Gainesville Sun Publ'g Co., 9 F.3d 913, 918-19 (11
A fact is material if it might affect the outcome of a proceeding under the governing substantive law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256 (U.S. 1986). A dispute of fact is genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Id.
At the summary judgment stage of a proceeding, the Court's function is not to determine the truth of the matter by weighing the evidence, but rather to determine if there is a genuine issue for trial. Id. When making this determination, the Court must view the evidence in the light most favorable to the nonmoving party. Adickes v. S.H. Kress & Co., 398 U.S. 144, 157 (1970); Rosen v. Biscayne Yacht & Country Club, Inc., 766 F.2d 482, 484 (11
The moving party bears the burden of establishing the right of summary judgment. Clark v. Coats & Clark, Inc., 929 F.2d 604, 608 (11
Once the moving party makes a prima facie showing that it is entitled to judgment as a matter of law, the nonmoving party must go beyond the pleadings and demonstrate that there is a material issue of fact that precludes summary judgment. Celotex, 477 U.S. at 324; Martin v. Commercial Union Ins. Co., 935 F.2d 235, 238 (11
Pursuant to BLR 7056-1(a)(1), Plaintiff attached a Statement of Material Facts Not in Dispute (Doc. 10) ("Plaintiff's SMF") to the Motion, and Defendants responded as required by BLR 7056-1(a)(2) (Doc. 14) ("Defendants' SMF").
Debtor filed a voluntary petition under Chapter 7 of the Bankruptcy Code on March 31, 2015 (the "Petition Date").
On or about April 7, 2014, an earthen dam located on the Property failed.
Debtor and Gobers agreed on December 16, 2014, to a consent judgment in the Gober Civil Action (the "Consent Judgment").
After reaching the settlement, the Gobers, through counsel, filed online with the Georgia Secretary of State's office the necessary documents to create a limited liability company with the name "MJG, LLC" on December 10, 2017, and this application was initially accepted.
An amended Consent Judgment (the "Amended Consent Judgment") was entered in the Gober Civil Action on January 27, 2015.
Debtor scheduled assets consisting of personal property with a value of $2,400.
Plaintiff "bears the burden of proving the avoidability of a transfer under [547(b)]." 11 U.S.C. § 547(g). The Bankruptcy Code provides that a "trustee may avoid any transfer of an interest of the debtor in property" as a preference if five conditions are met. 11. U.S.C. § 547(b). The transfer must:
For the reasons discussed below, Plaintiff has shown that she is entitled to avoid the Transfer as a preference under § 547, and each of Defendants' arguments in the Response fails.
Consent judgments in Georgia are contracts, and the Court will therefore treat the Consent Judgment as a contract for the sale of real property. See Brown & Williamson Tobacco Corp. v. Gault, 280 Ga. 420, 424 (2006). Under the terms of this contract Debtor was to: (1) transfer her interest in the Property within ten days of the execution of the Consent Judgment to a corporation formed and owned by the Gobers; (2) pay the Gobers $2,000; and (3) "release [the Gobers] from all claims except for those arising out of this Consent Judgment." In exchange for this, the Gobers would "release [Debtor] from all claims except for those arising out of this Consent Judgment."
Under Georgia law, a constructive trust is "implied whenever the circumstances are such that the person holding legal title to property, either from fraud or otherwise, cannot enjoy the beneficial interest in the property without violating some established principle of equity." O.C.G.A. § 53-12-132(a). "A constructive trust `is a remedial device created by a court of equity in order to prevent unjust enrichment.'" Eason v. Farmer, 261 Ga. 675, 677 (1991) (quoting Lee v. Lee, 260 Ga. 356, 357 (1990)); see also Watts v. Peachtree Tech. Partners, LLC (In re Palisades at W. Paces Imaging Ctr., LLC), 2011 Bankr. LEXIS 3576, at *15 (Bankr. N.D. Ga. Sep. 13, 2011) (Hagenau, J.).
"[A] constructive trust is not a remedy for a simple breach of contract or breach of a promise." Perkins v. Crown Fin., LLC (In re Int'l Mgmt. Assocs., LLC), 2016 Bankr. LEXIS 443, at *18 (Bankr. N.D. Ga. Feb. 10, 2016) (Bonapfel, J.). A constructive trust does not arise as a result of the parties' intentions, and imposition of a constructive trust in Georgia is a remedy to recover property that is "wrongfully" held, and is not an independent cause of action. Kelley v. McCormack (In re Mitchell), 548 B.R. 862, 880 (Bankr. M.D. Ga. 2016) (quoting In re Cotton, 2004 Bankr. LEXIS 440, at *7 (Bankr. N.D. Ga. Feb. 17, 2004) (Bonapfel, J.)).
Constructive trusts are also disfavored in bankruptcy. In re Mitchell, 548 B.R. at 883; In re Int'l Mgmt. Assocs., LLC, 2016 Bankr. LEXIS 443, at *17; Wachovia Bank, N.A. v. Vacuum Corp. (In re Vacuum Corp.), 215 B.R. 277, 281 (Bankr. N.D. Ga. 1997) (Drake, J.). "[T]he generation of [a] constructive trust substantially offends the Bankruptcy Code's general goal of equal distribution." In re Vacuum Corp., 215 B.R. at 281; In re Int'l Mgmt. Assocs., LLC, 2016 Bankr. LEXIS 443, at *17. Because of this, "courts generally will require that nonbankruptcy grounds for imposing a constructive trust be so clear, convincing, strong and unequivocal as to lead to but one conclusion." In re Vacuum Corp., 215 B.R. at 282 (citations omitted); see also In re Mitchell, 548 B.R. at 883.
As discussed above, the Consent Judgment and Amended Consent Judgment are contracts for the sale of real estate under Georgia law. Even assuming arguendo that Debtor breached those contracts when she failed to transfer the Property to MJG, LLC within ten days of the execution of the Consent Judgment,
Additionally, no equitable interest in the Property could have passed to Defendants prior to the Transfer because Defendants had yet to give consideration, and, pursuant to the Consent Judgment, all liabilities for damage to the Property remained with Debtor at that time. Similarly, Debtor was not unjustly enriched when she failed to transfer the Property on December 26, 2014, because Defendants had not transferred any consideration to Debtor. Ordinarily the purchase price of real estate is the amount paid by vendee to vendor plus the liabilities of vendor assumed by vendee.
Having concluded that no constructive trust arose on December 26, 2014, the Court must also find that the Transfer was made on January 5, 2015. A transfer is made, for purposes of § 547 of the Bankruptcy Code, when it "takes effect between the transferor and the transferee, if such transfer is perfected at, or within 30 days after, such time." 11 U.S.C. § 547(e)(2)(A). Under Georgia law, a transfer of real estate takes effect between the grantor and grantee when a deed passes. O.C.G.A. §§ 13-5-30, 44-5-30, 23-2-131; 2 Ga. Real Estate Law & Procedure § 19:17 (7th ed.). A deed that contains all of the necessary elements at execution, "as between the original parties, is valid irrespective of whether it is recorded or not."
Under § 547(e)(1)(A), "a transfer of real property other than fixtures . . . is perfected when a bona fide purchaser of such property from the debtor against whom applicable law permits such transfer to be perfected cannot acquire an interest that is superior to the interest of the transferee." Under Georgia law, a bona fide purchaser of real property cannot acquire a superior interest to the grantee after the deed has been appropriately recorded. Corbin, 174 S.E. at 259-60. Since the Transfer was perfected on January 6, 2015, which was within the thirty-day period, the Transfer was "made" on January 5, 2015. Thus, Plaintiff has satisfied the requirement that the Transfer was made within ninety days of the Petition Date.
Pursuant to § 547(f), Plaintiff is entitled to a presumption that Debtor was insolvent at this time. "This presumption is rebuttable, but rebutting the presumption requires the presentation of evidence," and "the party opposed to the summary judgment motion must produce more than speculative evidence of solvency in order for the party to rebut the statutory presumption of insolvency." Gordon v. Harrison (In re Alpha Protective Servs.), 531 B.R. 889, 898 (Bankr. M.D. Ga. 2015); In re Dempster, 59 B.R. 453, 456 (Bankr. M.D. Ga. 1984). There is no evidence before the Court that rebuts this presumption of insolvency.
Finally, Defendants argue that Plaintiff cannot satisfy § 547(b)(5) because they received what they would have received under a hypothetical Chapter 7 liquidation. Defendants argue that they are secured judgment creditors who are entitled to the Property as their security because the Consent Judgment is a money judgment. Under Georgia law, however, neither the Consent Judgment nor the Amended Consent Judgment could create a lien on the Property without the filing of a writ of feiri facias in Paulding County because the judgments were obtained in Cobb County and the Property is located in Paulding County. O.C.G.A. § 9-12-83. There is no evidence Defendants filed a writ of feiri facias in Paulding County to support Defendants' argument that they are secured creditors.
The undisputed facts further show that Debtor's other property has an aggregate value of around $2,400 and that Defendants are not the only unsecured creditors. Defendants, having received the Property instead of their pro rata distribution of the proceeds of a sale of the Property, necessarily received more than they would have received under a hypothetical Chapter 7 liquidation in which Plaintiff would have sold the Property and disbursed the proceeds to the Gobers, the Masons, and the Houstons on a pro rata basis.
For the reasons stated above, Plaintiff is entitled to summary judgment on Count I, and the Transfer is hereby avoided as a preferential transfer under § 547 of the Bankruptcy Code. While this finding moots the need to rule on Counts II and III, the Court will consider both of those counts as well.
"The trustee may avoid any transfer . . . of an interest of the debtor in property . . . that was made or incurred within 2 years before the date of the filing of the petition if the debtor voluntarily or involuntarily . . . received less than a reasonably equivalent value in exchange for such transfer." 11 U.S.C. § 548(a)(1)(B). Additionally, § 544(b)(1) of the Bankruptcy Code provides that "the trustee may avoid any transfer of an interest of the debtor in property . . . that is voidable under applicable state law by a creditor holding an unsecured claim that is allowable under Section 502 of [the Bankruptcy Code] or that is not allowable only under section 502(e) of [the Bankruptcy Code.]" 11 U.S.C. § 544(b)(1). Plaintiff moves under Georgia's Uniform Voidable Transactions Act
Plaintiff is not entitled to summary judgment on Count II or Count III of the Complaint. Plaintiff's sole argument as to why the Transfer was not for "reasonably equivalent value" is that the Gobers did not give any consideration for the Property. As discussed above, the Gobers did give consideration for the Property. Plaintiff submitted no evidence as to the value of the Property at the time of the Transfer, and without this evidence, the Court cannot determine whether the Transfer was for less than reasonably equivalent value.
For the foregoing reasons, it is hereby
