IN RE ABRAHAM, (Bankr.E.D.Mich. 2001)

Case No. 99-45394, Adv. No. 99-4599-BPUnited States Bankruptcy Court, E.D. Michigan, Southern Division
January 16, 2001

DECISION and ORDER ON PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT
BURTON PERLMAN, Recalled Bankruptcy Judge

In this adversary proceeding, plaintiff/trustee seeks to recover for the bankruptcy estate two parcels of realty which he alleges have been fraudulently transferred by the debtor to defendants prior to filing her petition. Now before the court is plaintiff’s motion for summary judgment.

The complaint[1] contains 13 counts in which the following allegations are made. The first parcel of realty here involved is a single-family residence located on Lambs Road, Goodells, Michigan (hereafter the “Lambs Road property”). The other

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parcel is a condominium located on West Eight Mile Road, Farmington Hills, Michigan (hereafter referred to as the “Eight Mile Road property”). Debtor and defendant Kevin Watkins (“Watkins”) were in a relationship. Debtor conveyed the Lambs Road property to herself and Watkins by quit claim deed dated March 19, 1997. Debtor and Watkins then, on July 10, 1997, executed a land contract with regard to the Lambs Road property by which debtor agreed to convey her half interest in that property to Watkins on certain conditions. A quit claim deed in which both debtor and Watkins were the grantors and defendant Tonya Richardson (“Richardson”) was the grantee was executed September 2, 1998. Richardson was Watkins’ wife.

As to the Eight Mile Road property, that too was conveyed by debtor to herself and Watkins as joint owners by quit claim deed dated March 19, 1997. Debtor conditionally agreed to convey her half interest in that property to Watkins by land contract dated July 10, 1997. A quit claim deed was executed dated September 2, 1998, in which debtor and Watkins were named as grantors, and title of the Eight Mile Road property was purportedly conveyed to defendant Richardson.

The first two counts of the complaint are based upon the Bankruptcy Code, seeking avoidance of fraudulent transfers pursuant to 11 U.S.C. § 548. Thus, count I seeks recovery for the bankruptcy estate of the Lambs Road property, while count II seeks recovery of the Eight Mile Road property. All of the

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remaining 13 counts in the complaint seek recovery of the two parcels of realty pursuant to Michigan law, as permitted by 11 U.S.C. § 544. Thus, counts III and IV assert fraudulent conveyance claims against the two parcels of realty pursuant to Mich. Comp. Laws Ann. § 566.14. Counts V and VI assert fraudulent conveyance claims against the two parcels of realty pursuant to Mich. Comp. Laws Ann § 566.17. Counts VII and VIII assert fraudulent conveyance claims against the land contract conveyances of the two parcels of realty pursuant to Mich. Comp. Laws Ann. § 566.14. Counts IX and X assert fraudulent conveyance claims of the land contract transactions involving the two parcels of realty, pursuant to Mich. Comp. Laws Ann § 566.17. Counts XI and XII seek to quiet title with respect to the two parcels of realty.

Count XIII is distinctive in that it asserts a claim against the notary regarding execution of documents relating to the two parcels of property. By separate decision we have abstained from considering this count and it has been dismissed.

Plaintiff now moves for summary judgment. With his brief in support, he includes an affidavit by debtor; transcripts of 2004 examinations of defendants Watkins and Richardson, as well as copies of relevant deeds and land contracts. Defendants Watkins and Richardson filed a brief in opposition to the motion, including therewith excerpts from the examination of those defendants; an affidavit by defendant Watkins; an affidavit

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by Charlotte Davidson, a real estate sales associate who handled the closing on the Eight Mile Road property; a transcript of a deposition of debtor Terry Abraham; and copies of relevant deeds and land contracts. Plaintiff then filed a reply memorandum, including with it a Declaration of Debtor Terry Abraham, with attached exhibits consisting of the deed to the Eight Mile Road property, and a settlement statement regarding the transfer of that property.

Motions for summary judgment are governed by Fed.R.Civ.P. 56
which is incorporated into bankruptcy practice by F.R.Bankr.P. 7056. That rule provides in part that a motion for summary judgment is to be granted “if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law.” The moving party bears the initial burden of showing that there is no issue of material fact. Celotex Corp.v. Catrett, 477 U.S. 317, 323-324 (1986). The nonmoving party, however, bears the ultimate burden of showing that a genuine issue of material fact exists. In doing so, the nonmoving party cannot rest on its pleadings, but must, in response, offer some evidence which demonstrates a genuine issue of material fact for trial. Id.

At the outset of our analysis, we comment that the approach by plaintiff, that the first transactions to be considered are

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those of September 2, 1998, is flawed. The basis for this view is that plaintiff/trustee succeeds to the ownership interest of the debtor. Plaintiff examines the transactions of this date with respect to both parcels of realty and concludes that he is entitled, if successful, to recover the entire interest in the realty. The undisputed fact, however, is that if those two transactions are regarded by themselves the transfer in each case is by the debtor and Watkins jointly, so that even if the deeds in question were set aside, plaintiff could secure only half an interest in the property. Instead, the proper starting point is with the initial transactions for both parcels, both of which occurred March 19, 1997.

Another preliminary point which must be dealt with is that it is unsound to treat both the Lambs Road property and the Eight Mile Road property together as both parties have done on this motion. It is easy to see why they have done so, because there were three sets of transactions for each property: a first pair of quit claim deeds, one for each property; a pair of land contracts, one for each property; and a second pair of quit claim deeds for each property. Each pair was executed on the same date. We find it a sounder approach to deal with them separately.

I. Lambs Road Property.

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The initial transaction which comes under scrutiny here, that of March 19, 1997, transferred sole title from debtor to herself and Watkins jointly.

Plaintiff seeks to avoid this transfer pursuant to Michigan law. By application of § 544 of the Bankruptcy Code, plaintiff is entitled to do that. He does so because this transaction occurred outside the statute of limitations provided in 11 U.S.C. § 546, but within the time allowed by Michigan law. For present purposes, we use the Uniform Fraudulent Conveyance Act (MUFCA) which was in effect at the time of the transfer in question, March 19, 1997.[2]

Under the MUFCA, in order to avoid a transfer, a party had to show that “(1) the Debtor made a conveyance or incurred an obligation; (2) the Debtor was insolvent at the time of the conveyance or the incurrence of the obligation or the conveyance or obligation caused the Debtor to be rendered insolvent; and

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(3) the conveyance or obligation was made without fair consideration.” Frank v. McLain (In re Peet Packing Co.), 233 B.R. 387, 389 (Bankr. E.D. Mich. 1999). That there was no fair consideration by him provided for the transfer of the half-interest in the Lambs Road property was admitted by him. (See Watkins’ 2004 exam transcript, p. 74, lines 13-25 to p. 75, lines 1-2.) There Watkins testified that “. . . legally, how it had to be done, basically it was transferred for a dollar.” It is clear from the subsequent land contract that the Lambs Road property had value well in excess of one dollar. Plaintiff has also presented evidence by way of an affidavit by debtor showing that she was indeed insolvent on March 19, 1997, for her debts far exceeded her assets at that time. This is the proper test for insolvency under MUFCA as is apparent from Mich. Comp. Laws Ann. § 566.12. Plaintiff is therefore entitled to set aside the March 19, 1997 transfer by debtor to herself and Watkins of the Lambs Road property. The entire ownership of that property, then, resides in plaintiff/trustee.

Neither the subsequent land contract between debtor and Watkins with Watkins being the purchaser, nor the September 2, 1998 deed from debtor and Watkins to Tonya Richardson, affects that title. Plaintiff contends that the reason the land contract does not do so is because the land contract was rejected by operation of law by the trustee pursuant to § 365(d)(1). The transaction occurred well before the bankruptcy was

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filed, and consequently application of § 365 of the Bankruptcy Code to that transaction would be inappropriate. The subsequent transactions, the land contract and the September 2 deed, however, do not affect the trustee’s ownership because of the application of 11 U.S.C. § 550 which provides that “to the extent that a transfer is avoided under § 544 . . . the trustee may recover, for the benefit of the estate, the property transferred” from the initial transferee of such transfer, or any immediate or mediate transferee of such initial transferee. Watkins was an immediate transferee, Richardson, a mediate transferee, and so despite conveyances to them, the trustee is entitled to recover the property for the estate. While § 550(b) excepts from the operation of this language transferees who take for value and in good faith, there is no basis to apply the exception here. Watkins arranged these transactions with full knowledge of the circumstances which have led us to conclude that the March 19, 1997 transfer was a fraudulent transfer under Michigan law. Richardson, his wife, was not an independent player in the transaction, for Watkins arranged the transfer to her. (See Watkins’ 2004 exam transcript, pp. 94-5.) There is also the further consideration that the deed to Richardson is not valid for the reason that it was not executed in front of witnesses, nor were the grantors’ signatures properly notarized as required by Michigan law.

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II. Eight Mile Road Property.

We turn now to the Eight Mile Road property. There is a dispute between the debtor and Watkins as to whether the debtor paid anything toward the acquisition of this property, debtor saying that she put up $8,000.00, while Watkins contends that all the consideration paid on this property came from him. It is undisputed, however, that initially title was taken in debtor’s name and a mortgage was obtained on which she was the sole obligor. By reason of this detriment, in order for there to be fair consideration for debtor’s conveyance of a half-interest to Watkins in the Eight Mile Road property, she was entitled to some measure of compensation. Yet Watkins in his deposition testified that debtor received no consideration for that transfer (See Watkins’ 2004 exam transcript, p. 51, lines 12-25 to p. 52, line 1), so it follows that she received no fair consideration therefor. We have already seen that the debtor was insolvent on March 19, 1997, the date of the transfer of an interest from debtor to Watkins. Thus, plaintiff is entitled to avoid the March 19, 1997 transfer of an interest in the Eight Mile Road property from debtor to Watkins, when the MUFCA is applied to the transfer. Further, for the same reasons that we held applied to the Lambs Road property, neither the subsequent land contract nor the September 2, 1998 deed impacts the right of plaintiff/trustee to hold full ownership in the Eight Mile Road property.

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* * *
In the foregoing discussion, we have made a determination that the trustee assumes full ownership of both the Lambs Road property and the Eight Mile Road property, and they are both part of debtor’s bankruptcy estate. This does not mean, however, that Watkins is without rights that should equitably be recognized. At his deposition, he testified that he had made payments under the land contracts on both properties. By reason of those payments, and to the extent that they were actually made, Watkins holds a security interest in the property. Darr v. First Fed. Sav. andLoan Ass’n. of Detroit, 426 Mich. 11, 21 (1986). Indeed, theDarr case holds that if payment under a land contract is completed, as Watkins alleges is true as to the Lambs Road property, he is entitled to be regarded as the owner of that property. See also Mich. Comp. Laws Ann. § 565.361. The record before us does not, however, contain definitive evidence quantifying any payments by Watkins on either land contract.

In light of the foregoing discussion, we grant partial summary judgment to plaintiff, holding that plaintiff has full ownership rights in both parcels of real estate and both are part of the bankruptcy estate. An evidentiary hearing is still necessary as to the amounts that Watkins may have paid pursuant to the two land contracts so that any security interest he has may be quantified. The Clerk will restore this proceeding to the trial docket for that limited purpose.

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In concluding this decision, we address certain concerns raised in defendants’ brief. Defendants there contend that Watkins testified unwillingly without counsel, and was threatened with contempt of court unless he proceeded. Our review of the transcript discloses that these assertions are groundless. There is absolutely nothing in the transcript showing a threat of contempt of court; there is absolutely nothing in the record showing that Watkins’ testimony was not willingly given, or that he was treated other than courteously.

So Ordered.