Michael E. Ridgway, United States Bankruptcy Judge.
At Minneapolis, Minnesota, September 9, 2016.
The matter pending before the Court is the Plaintiff's motion for summary judgment. The Court heard oral argument on August 11, 2016. Matthew D. Swanson, Esq., appeared on behalf of the Plaintiff (the "Trustee" or the "Plaintiff"); David C. Olson, Esq., appeared on behalf of the Defendant ("Lindback" or the "Defendant"). The Court requested and received supplemental documents from Defendant's counsel
This is a core proceeding under 28 U.S.C. § 157(b)(2), and this Court has jurisdiction under 28 U.S.C. §§ 157(a) and 1334. The Court makes this memorandum decision based on all the files, records, and proceedings herein, and pursuant to Fed. R. Bank. P. 7056. For the reasons set forth below, the Trustee's motion will be granted.
Summary judgment is governed by Federal Rule of Civil Procedure 56, which is made applicable to this motion by Federal Rule of Bankruptcy Procedure 7056. Rule 56(a) provides: "The court shall grant 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." Fed. R. Civ. P. 56(a). Thus, when a party files a motion for summary judgment, it has put the issue that there are no disputed material facts before the trial court. The moving party must advise the court of all evidence which it believes demonstrates the absence of a genuine issue of material fact, and that it is entitled to judgment as a matter of law.
"Summary judgment is appropriate if the evidence, viewed in the light most favorable to the [non-moving party] and giving [the non-moving party] the benefit of all reasonable inferences, shows there are no genuine issues of material fact and [the moving party] is entitled to judgment as a matter of law."
Initially, it is the burden of the movant to inform the court of the basis for the motion, and identify those portions of "the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, which it believes demonstrate the absence of a genuine issue of material fact."
In sum, the movant must show there is an absence of evidence to substantiate the nonmoving party's case.
The Trustee initiated an avoidance action under Minn. Stat. § 513.45(b), made applicable to bankruptcy proceedings by virtue of 11 U.S.C. § 544. He seeks to avoid, and recover for the benefit of the estate, the sum of $41,356.24, which the Debtor paid to Lindback (her mother), May 27, 2014, as partial repayment of a series of unsecured loans totaling $71,500.00 Lindback had made to the Debtor between February 2012 and December 2013.
The loans were made to the Debtor to enable her to complete an expansion to the business she owned, Diamond in the Rough, LLC, a horse boarding and riding facility located near Dayton, Minnesota. The improvements included a large indoor riding ring, tack barn, and a social room for her clients. The Debtor made regular monthly payments to her mother from March 2012 to February 2013. No further payments were made by the Debtor until May 2014, when she liquidated certain stock interests she owned, and paid Lindback the $41,356.24
The Trustee's one-count complaint invokes Minn. Stat. § 513.45(b), often referred to as "the Minnesota preference statute," which states:
Minn. Stat. § 513.45(b). Under this statute, the Trustee has the burden of establishing the following elements:
The Defendant concedes, as well she must, that the trustee has met his burden in establishing all of these elements save the last: that the Defendant had reasonable cause to believe that the Debtor was insolvent. The Defendant also asserts that the transfer at issue was made in the "ordinary course of business" of the Debtor and herself. Each defense will be addressed in turn.
In her response to the Plaintiff's motion for summary judgment, the Defendant asserted that "[t]he payments made by the debtor to the Defendant were made in the course of business or financial affairs of the debtor and the Defendant. Minn. Stat. § 513.48(f)(2)."
Fed. R. Civ. P. 8(c), made applicable to this proceeding under Fed. R. Bankr. P. 7008, provides that, "In responding to a pleading, a party must affirmatively state any avoidance or affirmative defense, including:...." Similarly, its state law counterpart, Minn. R. Civ. P. 8.03, states, in pertinent part: "In pleading to a preceding pleading, a party shall set forth affirmatively accord and satisfaction, arbitration and award, assumption of risk, contributory negligence, discharge in bankruptcy ... and any other matter constituting an avoidance or affirmative defense."
In her reply to the Trustee's waiver argument, the Defendant points to both the federal rule and its state counterpart, neither one of which, she urges, specifically lists the "ordinary course of business" as an affirmative defense that is required to be pleaded. "Defendant's position, that the payments received by the debtor were made in the ordinary course of the business or financial affairs of the debtor negates elements of Plaintiff's prima facie case." ECF No. 19, p. 2.
Failure of a party to assert, in a timely fashion, an affirmative defense, can result in a waiver of it. "Alleged debtor's status as a farmer does not go to the jurisdiction of the bankruptcy court over an involuntary petition but, instead, is an affirmative defense that is waived if not timely raised."
Furthermore, even if the defense had not been waived, under Minn. Stat. § 513.48(g)(1), the Defendant bears the burden of proving the applicability of the "ordinary course of business" defense contemplated by Minn. Stat. § 513.48(f)(2). In this regard, it is analogous to the bankruptcy ordinary course of business defense found at 11 U.S.C. § 547(c).
The final element the Trustee has to prove is that the Defendant had reasonable cause to believe that her daughter was insolvent at the time of the prepetition transfer. As the Trustee aptly points out in his briefs in support of the motion for summary judgment, "[t]he true inquiry in this matter is whether a reasonable person, acting prudently, diligently, and in view of all of the facts and circumstances known to her, had reasonable cause to believe that the Debtor was insolvent."
A review of the deposition testimony of both Lindbeck and her daughter reveals that this standard has been met. After having made regular payments on the loan her mother made to her, the Debtor testified that no payments had been made since February 2013.
ECF No. 13, Declaration of Matthew D. Swanson, Ex. 1 p. 35, lines 2-10.
When the Debtor's loan became due, she testified that she was unable to pay off the amount; instead, the Debtor liquidated all of her remaining stock assets to come up with the amount of $41,356.24.
Cast in the light of the Debtor's testimony, her mother, in her deposition testimony, testified as follows:
Based on the undisputed facts, and the deposition testimony of both Lindback and her daughter, Lindback had reasonable cause to believe that the transfers to her on May 27, 2014 were made when her daughter was insolvent.
The Trustee has met his burden of coming forward with sufficient facts to establish the absence of a genuine issue of material fact. The burden having thus shifted to the Defendant to establish specific and genuine issues of material fact warranting a trial; she has not done so, thereby entitling the Trustee to summary judgment in his favor. Therefore, the Court makes the following:
1. This bankruptcy case was commenced by the filing of a Chapter 7 petition on June 15, 2015.
2. The Defendant is an individual residing in the state of Minnesota.
3. The Defendant, Rita Lindback, is the mother of the Debtor, Karen White.
4. The Plaintiff is the Trustee in the bankruptcy case of Karen White, assigned bankruptcy case no. 15-42150.
5. In 2011, the Debtor commenced a project on her property which led to her incurring substantial debts from 2012 through 2014, and eventually led to the filing of her bankruptcy petition on June 15, 2015.
6. From February 2012 through March 2013, the Defendant lent monies totaling $71,500.00 to the Debtor.
7. The Defendant lent the Debtor monies without reviewing any financial records of the Debtor, and not knowing whether or not the Debtor had the ability to repay the loans.
8. The agreement between the Defendant and Debtor was that the Debtor would make monthly payments to the Defendant, and if necessary, liquidate stock to repay the loan.
9. The Debtor made monthly payments on the loans to the Defendant from March 2012 through January of 2013. From February 2013 through May 2014, the Debtor did not make any monthly payments on her debt to the Defendant.
10. During the time the Debtor was not making payments on the Defendant's loan, the Defendant was aware of the Debtor's precarious financial condition and had reasonable cause to know that the Debtor was insolvent.
11. On May 27, 2014 the Debtor liquidated certain stock interests and transferred payments totaling $41,356.24 to the Defendant as partial payment of the debt owed to the Defendant.
12. As the Debtor was unable to pay the full amount of the loan to the Defendant, the Debtor and the Defendant executed a
13. At the time of the prepetition transfers, other creditors held liquidated and matured claims against the Debtor and at least one of those claims remained unpaid as of the filing of the Debtor's petition.
14. At the time of the prepetition transfers, the Debtor was statutorily insolvent under Minn. Stat. § 513.42, as her assets exceeded her liabilities, and she was not paying her debts as they became due.
15. On June 15, 2015, the Debtor filed a voluntary Chapter 7 bankruptcy petition, approximately one year and two weeks after the prepetition transfers to the Defendant.
1. Avoidance of the prepetition transfers totaling $41,356.24 is appropriate under Minn. Stat. § 513.45(b), made applicable by 11 U.S.C. § 544.
2. The bankruptcy estate is entitled to recover the avoided transfer through 11 U.S.C. § 550.
1. The Plaintiff's motion for summary judgment is
2. The prepetition transfer of $41,356.24 to the Defendant is avoided as a fraudulent transfer under Minn. Stat. § 513.45(b); made applicable by 11 U.S.C. § 544.
3. Under Minn. Stat. § 513.45(b), the Plaintiff is entitled to judgment in the amount of $41,356.24 against the Defendant, Rita Lindback.
4. The bankruptcy estate is entitled to recover the avoided transfer under 11 U.S.C. § 550.