KSB

Judge Somers

09-06099 Terra Bentley II, LLC v. Village of Overland Pointe et al (Doc. # 167) - Document Text

SO ORDERED.
SIGNED this 27th day of April, 2012.

 

Opinion Designated for Electronic Use, But Not for Print Publication
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS


In Re:

TERRA BENTLEY II, LLC,
DEBTOR.

TERRA BENTLEY II, LLC,
PLAINTIFF,

v.
VILLAGE OF OVERLAND POINTE,
LLC,
DEFENDANT.

CASE NO. 09-23107-11
CHAPTER 11

ADV. NO. 09-6099

OPINION CONCLUDING PLAINTIFF FAILED TO PROVE ITS CLAIMS
TO AVOID TWO TRANSFERS AS CONSTRUCTIVELY FRAUDULENT
UNDER THE KANSAS UNIFORM FRAUDULENT TRANSFER ACT


This proceeding was before the Court for trial on January 24, 25, and 26. The
Plaintiff-Debtor appeared by counsel James F.B. Daniels. The Defendant appeared by

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counsel Eldon Shields and Steve Smith. The Court heard evidence and arguments, and
announced its ruling on several of the Debtor’s claims, but reserved ruling on its claims
seeking to avoid the sale of land usually identified as Lot 4 and the filing of a Declaration
of Covenants, Restrictions, Easements, Reservations and Assessments on the ground they
constituted transfers made or obligations incurred without receiving a reasonably
equivalent value in exchange when the Debtor either (1) was engaged in a business for
which its remaining assets were unreasonably small in relation to the business,

(2) intended to incur, or believed or reasonably should have believed it would incur, debts
beyond its ability to pay as they came due, or (3) was insolvent. The Court is now ready
to rule on those reserved questions.
Background Facts

Terra-Bentley II, LLC, is the Debtor in the Chapter 11 bankruptcy case to which
this adversary proceeding is related. Defendant Village of Overland Pointe, LLC
(“Village”) is owned or controlled by L. Gray Turner and John Sweeney, two men who
were involved in organizing the Debtor and were its original managers. Turner and
Sweeney also owned or controlled Terra Venture Investments, LLC (“Terra Venture”).

In March 2005, Bentley Investments of Nevada IV, LLC (“Bentley IV”), and Terra
Venture formed the Debtor, dividing its ownership equally between them. They signed
an operating agreement (“Operating Agreement”) that initially governed the Debtor and
its business. The Operating Agreement provided that it could not be amended except in a
writing approved by both of the Debtor’s members. At the time, Terra Venture had a

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contract to buy approximately 20 acres of land at the southeast corner of 135th Street and
Mission Road in Leawood, Kansas, for almost $5 million.

Under the Debtor’s Operating Agreement,1 Schedule B was labeled “Business
Plan.” It noted the Terra Venture contract and said the Debtor’s managers were to
contract with professionals to develop a site plan for retail and office uses and obtain
zoning to allow such uses. Once the site plan and zoning were approved, the Debtor was
to purchase the property under the Terra Venture contract, which was assigned to the
Debtor. Those approvals were obtained and in October 2005, Bentley IV supplied
enough cash to enable the Debtor to obtain a loan to buy the 20 acres. The Debtor took
out a loan, bought the property, and named it “Mission Corner,” mortgaging it as security
for the loan. Schedule B provided that a licensed real estate broker (an affiliate of Terra
Venture) was to immediately begin marketing the property in whole or in parts at prices
specified in Schedule F of the Operating Agreement.

At trial, the Debtor relied heavily on the last sentence of Schedule B, which reads:
“The intent of the Managers is to sell the land as fast as reasonably possible and for the
most money as can reasonably be expected.” The Debtor argued this statement of its
business plan meant the Debtor did not intend to build infrastructure on the property,
probably a plausible reading. But the plan can also be read not to exclude the possibility
that infrastructure would be necessary in order to sell the land “as fast as reasonably

1Admitted into evidence as Debtor’s Exhibit 6; also marked as Village’s Exhibit 402.
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possible and for the most money as can reasonably be expected.” Furthermore, Schedule
F included a sentence reading: “In the event some infrastructure improvements are
required for the sale of land, then the Members shall use a portion of the sale proceeds to
pay for the costs[;] however the Members must approve any sale where the sale price, less
the infrastructure costs, is less than the Minimum Sale Price.” Thus, when they signed
the Operating Agreement, both Terra Venture and Bentley IV clearly recognized that
some infrastructure might have to be built in order for the Debtor to sell the property.

Schedule F of the Operating Agreement provided for an affiliate of Terra Venture
that was a licensed real estate broker (“the Broker”) to act as the listing agent who would
try to sell either all or parts of Mission Corner for the Debtor. The listing agreement was
to last three years. The Operating Agreement specified an asking price for retail lots of
$15 per square foot, and for office lots of $12 per square foot. A bulk selling price of
$9.50 per square foot was specified for any sale of at least 8 acres. The Broker was to
market the property for the asking prices, but was authorized to sell property for as little
as 80% of those prices without the consent of the Debtor’s members. The asking and
bulk selling prices were gross prices from which commissions and closing costs were to
be deducted, and if infrastructure improvements were required to sell the land, the
Debtor’s members had to approve any sale where the sale price minus the infrastructure
cost was less than 80% of the asking price. As stated earlier, this indicates the parties had
at least some inkling that infrastructure improvements might have to be made in order to
sell any of the land, despite the fact the business plan did not expressly include any

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reference to such improvements. The asking prices and the bulk selling price were to
increase by $1 per square foot in the second year of the listing agreement, and another $1
in the third year. Another affiliate of Terra Venture was authorized to purchase lots at
any time for 80% of the asking prices, but if no sales occurred in the first six months,
could acquire lots for 70% of the asking prices. The starting date for the listing
agreement was October 5, 2005, when the Debtor closed on its purchase of the land.2

As indicated, Turner and Sweeney were the Debtor’s initial managers. They had a
development plan and a plat prepared for Mission Corner. In August 2005, the City of
Leawood (“the City”) rezoned Mission Corner from agricultural use to planned
neighborhood retail use, and approved the Debtor’s preliminary site plan and preliminary
plat for the property.

In January 2006, the Debtor submitted an application to modify the rezoning and
the preliminary site plan and preliminary plat for Mission Corner, and the City approved
the application by an ordinance passed in May 2006. This changed the zoning to mixed
use, and authorized up to 160,000 square feet of commercial construction and 155,400
square feet of residential construction on the property. The ordinance required the Debtor
to make specified road and utility improvements before any building in the Mission
Corner development could be finally occupied.

No part of Mission Corner was sold during the first six months of the listing

2Debtor’s Exhibit 126, state court trial testimony of Stephen Seat at 32-33.
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agreement. During the next six months, in June 2006, the Debtor sold a retail lot,
designated on the preliminary plat as “Lot 4,” to Village for $10.50 per square foot, or a
total price of $607,908. Sweeney was the only person who signed the sale contract (“Lot
4 Sale Agreement”).3 In an email message, a representative of Bentley IV approved
having Sweeney sign for both parties to the sale. The Broker was paid a commission of
about $36,000 from the proceeds of the sale, and about $567,000 was paid on the
Debtor’s mortgage loan. The Debtor has conceded this transaction was affirmatively
approved by Bentley IV and Terra Venture, even though it appears to have satisfied the
conditions set out in Schedule F of the Operating Agreement for selling the lot without
further consent from the Debtor’s members. Lot 4 contains 57,896 square feet and is
surrounded by the rest of the Debtor’s Mission Corner property, which contains 641,804
square feet.4 Utility easements and internal roadways to serve Lot 4 would lay on or
across the Debtor’s property.

The Lot 4 Sale Agreement contained two paragraphs that are important for the
remaining claims in this suit. Paragraph 20 provided Village and the Debtor would make
an agreement in the future dealing with easements for access, parking, and other

3Sweeney signed for both the Debtor and Village as “Trustee, Member,” although he was not
personally a member of the Debtor and his trustee position was not explained at trial. However, the
Debtor concedes the sale complied with the Operating Agreement, so any questions about Sweeney’s
status with the Debtor and Village in signing the Lot 4 Sale Agreement have played no part in the Court’s
decision.

4Different square footage numbers sometimes appear in the record, for example, in the appraisals
described below, but the numbers used here are those accepted by a state court in a bench trial held before
it. The variance in the numbers is not large, and the numbers stated in the text are close enough for the
Court to decide the remaining issues in this case, even if they are not exactly correct.

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purposes, and paying for maintenance of common areas; it read:

The parties agree to enter into an agreement related to the [Lot 4]
Property and the remaining portion of the proposed plat of Mission Corner
owned by [the Debtor] (the “Adjoining Property”) which shall provide for

(a) non-exclusive, mutual cross easements for ingress, egress and parking
over and across all portions of the [Lot 4] Property and the [Debtor’s]
Adjoining Property improved from time to time for such purposes; (b) non-
exclusive, mutual cross easements for utilities and storm drainage and
detention, (c) restrictions against uses inconsistent with a first-class
residential/commercial development, (d) maintenance, repair and
replacement and insuring of all of the common areas on the [Lot 4] Property
and the [Debtor’s] Adjoining Property, including, but not limited to, private
streets, parking areas and detention and landscape areas and prorata
payment by [Village] and the owner from time to time of the [Debtor’s]
Adjoining Property of the costs of the same based on land square footage,
(e) prorata payment (based on land square footage) by [Village] and the
owner from time to time of the [Debtor’s] Adjoining Property of costs
assessed to the [Lot 4] Property and the [Debtor’s] Adjoining Property
under any agreement for maintenance of private street[s], and (f) such other
matters as are agreed to by the parties.
Paragraph 21 concerned the construction of infrastructure for Mission Corner; it read:

With respect to the development of the real estate which is the
subject of the proposed plat of Mission Corner, [the Debtor] and [Village]
agree as follows:

A. All owners of the real estate comprising Mission Corner
shall pay when due their respective prorata shares, based on
land square footage, of the costs of public and private
improvements incurred in connection with the development of
Mission Corner, the cost of fees associated with filing a plat
of the Mission Corner, the cost of construction of any private
or public road, turn lanes as may be required, assessments for
the widening of Mission, if any, and all utilities required to
serve Mission Corner.
B. [The Debtor] and [Village] shall agree on a grading plan
for grading of Mission Corner. [The Debtor] and [Village]
acknowledge that Mission Corner will be developed as a
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single, unified development, including not only grading, but
construction of streets and utilities as well. [The Debtor] and
[Village] agree to pay when due their respective prorata
shares of the cost of such construction, based on land square
footage. In connection with the unified development of
Mission Corner, each owner of real estate therein contained
must agree to grant any utility easements required in order to
extend utility lines.

In prior litigation between the Debtor and Village, a Kansas state court ruled the
parties intended for the Lot 4 Sale Agreement to require the Debtor to proceed with
construction of infrastructure for the Mission Corner development, and to complete and
file the final plat for the development. The state court explicitly rejected the Debtor’s
argument that the Lot 4 Sale Agreement should be construed to mean the parties intended
that the Mission Corner property might never be developed. The Lot 4 Sale Agreement
clearly modified the business plan stated in the Operating Agreement, to the extent it
might have been necessary, to provide that the Debtor would build infrastructure for the
Mission Corner development. It also modified the Schedule F provision about paying for
the infrastructure from the sale proceeds to instead require Village to pay a pro rata share
of the infrastructure costs in addition to the $607,908 sale price. In effect, this
modification allowed the parties to ignore the infrastructure costs in determining whether
the price Village was paying satisfied the price set in Schedule F.

In October 2006, the Debtor obtained an estimate of the cost, based on preliminary
plans, to build the private infrastructure for the Mission Corner development. The
estimate was almost $2.5 million, but that was later reduced to just under $2 million

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because fill dirt was available from another site, and a retaining wall and water feature
were eliminated. The Debtor hired a construction company to do some grading and other
infrastructure work, and that company obtained a grading permit late in December 2006.

Along with the estimate for the private infrastructure, the construction company
gave the Debtor an estimate of the cost to build public infrastructure for the Mission
Corner development. This mainly concerned building or modifying public roads that
would surround the development, carrying traffic to and from it. That estimate was
$1.573 million. Bernie Shaner, an appraiser hired by a bank from which the Debtor
hoped to obtain financing, testified that such public infrastructure was normally paid for
up front by the local government through bonds which would be repaid over time from
sales tax revenue.

In May 2007, a significant change in the Debtor’s operations occurred. Paragraph

9.7 of the Debtor’s Operating Agreement established a reciprocal buy-sell option for
Bentley IV and Terra Venture. Under it, Bentley IV could force Terra Venture to choose
either to buy Bentley IV’s half of the Debtor or sell its own half to Bentley IV, and Terra
Venture could do the same to Bentley IV. On May 29, 2007, Bentley IV served Terra
Venture with a letter exercising this option. Terra Venture had sixty days to choose
whether to buy or to sell.
On July 23, 2007, shortly before Terra Venture’s decision about the buy-or-sell
demand was due, the Debtor and Village signed a document called the “Mission Corner
Declaration of Covenants, Restrictions, Easements, Reservations and Assessments” (“the

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Declarations”) which was filed two days later with the Johnson County Register of
Deeds. Turner signed this document as a manager of the Debtor, and Sweeney signed it
as a member of Village. The Declarations say when the “Developer” (who is the Debtor)
sells a lot to a third party, the Developer will begin and diligently proceed with all
infrastructure improvements required for a certificate of occupancy to be issued for a
building to be built on the lot. Like the Lot 4 Sale Agreement, the Declarations provide
that each buyer of a lot in Mission Corner is to reimburse the Developer for a pro rata
share of the costs of all public and private infrastructure and other common improvements
incurred in developing Mission Corner. The Declarations clearly address the obligation
imposed on the Debtor by ¶ 20 of the Lot 4 Sale Agreement to reach an agreement with
Village providing for cross-easements and other covenants necessary for the development
of Mission Corner. The Debtor’s attack on the filing of the Declarations seems to be
limited to a complaint that the Declarations imposed obligations on it to build
infrastructure for Mission Corner. But as the state court concluded, the Lot 4 Sale
Agreement had already imposed such obligations on the Debtor. The Debtor has not
suggested it gave up any other value as a result of the filing of the Declarations. In fact,
had the Debtor refused to reach an agreement like the Declarations, Village would have
had a colorable claim against it for breaching ¶ 20 of the Lot 4 Sale Agreement.

On July 27, 2007, Terra Venture chose to sell its interest in the Debtor to Bentley

IV. The Operating Agreement called for the closing on this transaction to occur within 30
days, and on August 14, Bentley IV became the sole owner of the Debtor.
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In the summer of 2007, representatives of Bentley IV told the construction

company that was working on the Mission Corner infrastructure that they had taken over
as managers of Mission Corner, and the company would no longer be dealing with Turner
or Sweeney. Later, they told the company to stop the infrastructure work on the
development. At that time, the rough grading and erosion control had been completed
and some temporary fencing had been installed. After that, the Debtor refused to take any
further action to get the final plat for Mission Corner filed or to install any infrastructure.

In October 2006, a bank hired Shaner’s company to appraise Mission Corner in
order, as Shaner understood it, for the bank to decide whether to make a loan to the
Debtor. In fact, an email message sent by Stephen Seat, a representative of Bentley IV,
shows that he asked the bank to hire Shaner to do the appraisal. Seat also said, “We will
be seeking further financing to accommodate site improvements,” and wanted the
appraiser to determine the value of the property “in its as-is condition as well as the value
of the site as improved (all infrastructure completed and sales estimated over an
absorption period).” Shaner testified about two appraisals (as well as several drafts) his
company prepared for the development.

A Shaner appraisal report dated December 4, 2006, estimated the value of the
Debtor’s remaining portion of Mission Corner (excluding Village’s Lot 4) as of Octoer
19, 2006, to be $4.63 million “as is,” and $11.33 million “as if developed” (during his

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testimony, he sometimes referred to this as the “as developed” value).5 Shaner explained
the property had not been developed by October 19, 2006, but was simply plowed
ground. This appraisal considered the Debtor’s property to contain 616,810 square feet.
The “as if developed” value was predicated on completion of improvements according to
the plans and specifications provided to Shaner, and used a valuation date of March 15,
2007, the estimated completion date of the proposed site improvements. The appraisal
was prepared for M&I Bank, a bank where the Debtor had applied for a loan to pay for
building the infrastructure needed to develop Mission Corner. Shaner explained that this
appraisal valued only the Debtor’s part of Mission Corner because it was prepared after
the Debtor had sold Lot 4 to Village.6 The appraisal would likely have enabled the
Debtor to borrow against the expected “as developed” value of Mission Corner in order to
pay for the infrastructure construction.

Shaner’s December 4, 2006, appraisal of the Debtor’s portion of Mission Corner in
as-is condition was based on a value of $7.50 per square foot, with no indication the
appraiser thought any portion of Mission Corner in its as-is condition was worth more
than any other portion. This would be so because the infrastructure necessary to build on
the land in accordance with the Debtor’s plan and plat had not yet been constructed in

5This appraisal was Village’s Exhibit 410, which was admitted into evidence. Several other
appraisals as of October 19, 2006, but dated before December 4, 2006, were shown to Shaner at trial, and
he explained they were all drafts. When he was asked why his company had not marked the earlier
appraisals to show they were drafts, he said, “We do now.”

6He testified some of the materials for the development referred to Lot 4 as “Lot D,” but he
understood both names to be referring to the part of Mission Corner that Village bought.

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October 2006. Shaner’s appraisal would therefore indicate Lot 4, which contained 57,896

square feet, was worth $434,220 in its as-is condition as of October 19, 2006. Nothing

presented at trial suggested the value of any part of the Mission Corner property would

have changed between June and October of 2006. Consequently, Shaner’s appraisal

provides strong evidence that the $607,908 Village paid for Lot 4 in June 2006 was not

less than reasonably equivalent to the lot’s value at that time.

Discussion

1. Applicable law and burden of proof.
The Debtor claims that under the Kansas Uniform Fraudulent Transfer Act7 certain

types of its creditors could avoid both the Lot 4 Sale Agreement and the filing of the

Declarations as transfers made or obligations incurred for less than reasonably equivalent

value.
It relies on two UFTA provisions. The first, K.S.A. 33-204(a), provides:

(a)
A transfer made or obligation incurred by a debtor is fraudulent as to
a creditor, whether the creditor’s claim arose before or after the
transfer was made or the obligation was incurred, if the debtor made
the transfer or incurred the obligation:
. . .
(2)
without receiving a reasonably equivalent value in exchange
for the transfer or obligation, and the debtor:
(A)
Was engaged or was about to engage in a business or a
transaction for which the remaining assets of the debtor
were unreasonably small in relation to the business or
transaction; or
(B)
intended to incur, or believed or reasonably should
have believed that such debtor would incur, debts
beyond such debtor’s ability to pay as they became
7K.S.A. 33-201 to -212.

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due.
The second, K.S.A. 33-205(a), provides:

(a)
A transfer made or obligation incurred by a debtor is fraudulent as to
a creditor whose claim arose before the transfer was made or the
obligation was incurred if the debtor made the transfer or incurred
the obligation without receiving a reasonably equivalent value in
exchange for the transfer or obligation and the debtor was insolvent
at that time or the debtor became insolvent as a result of the transfer
or obligation.
K.S.A. 33-207(a) provides that a creditor attacking a transfer or obligation may
obtain avoidance of the transfer or obligation to the extent necessary to satisfy its claim,
and K.S.A. 33-207(b) provides that if the creditor has a judgment against the debtor, the
court may allow the creditor to levy execution on the transferred asset or its proceeds.
Section 544(a)(1) and (a)(2) of the Bankruptcy Code authorize a debtor-in-possession like
the Debtor to avoid transfers and obligations that its creditors would be able to avoid
under applicable state law like the UFTA (whether or not such creditors actually existed).
So the Debtor had to show the Lot 4 Sale Agreement and the Declarations satisfied the
criteria of K.S.A. 33-204(a)(2) or K.S.A. 33-205(a) in order to avoid those transfers under
§ 544(a)(1) or (a)(2).
The Kansas version of the UFTA does not say anything about the burden of proof.
However, in McCain Foods v. Central Processors, Kansas Supreme Court looked to a
case decided before the UFTA’s adoption to determine the burden of proof under the

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UFTA.8 The court stated that, in Kansas, “[t]he general rule is, of course, that fraud is
never presumed and must be established by clear and convincing evidence. The burden
of establishing fraud is upon the party asserting it.”9 “Clear and convincing evidence is
not a quantum of proof, but rather a quality of proof; thus, the plaintiff establishes fraud
by a preponderance of the evidence, but this evidence must be clear and convincing in
nature.”10 Although McCain Foods concerned the burden of proof for a claim of a
fraudulent transfer made with the actual intent to hinder, delay, or defraud a creditor, this
Court sees nothing in the structure or purpose of the UFTA that suggests the burden of
proof should not likewise rest on the party attacking a transfer as having been
constructively fraudulent because it was made for less than a reasonably equivalent value.
“There is nothing in the Bankruptcy Code to indicate that Congress meant to displace
state law standards of proof when the estate seeks to avoid a transaction under section
544” in reliance on state law.11 Accordingly, in order to prevail, the Debtor had the
burden to prove the transfers it is attacking were avoidable.

2. The Debtor failed to show that it received less than a reasonably equivalent value
in return for the sale of Lot 4 to Village.
8 McCain Foods USA, Inc. v. Central Processors, Inc., 275 Kan. 1, 12-13 (2002) (citing Koch
Engineering Co. v. Faulconer, 239 Kan. 101 (1986)).
9 Koch Engineering Co. v. Faulconer, 239 Kan. at 107, 716 P.2d at 186.
10 Newell v. Krause, 239 Kan. 550, 557, 722 P.2d 530, 536 (1986).
11 In re Jackson, 318 B.R. 5, 12 (Bankr. D.N.H. 2004) (avoidance action under New Hampshire
Uniform Fraudulent Transfer Act).
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The Debtor did not suggest the $607,908 price Village paid for Lot 4 was itself
insufficient. Instead, at times, it argued that in the Lot 4 Sale Agreement, it not only
transferred Lot 4 but also took on the obligation to build the infrastructure included in the
Mission Corner plan and plat, and asked the Court to determine the value it received for
the transfer of Lot 4 by subtracting from the price Village paid the estimated cost of
building both the private and public infrastructure for the development. This calculation
gives a result of almost negative $3 million, which would establish the transfer was made
for less than a reasonably equivalent value — if it were a proper way to determine what
the Debtor received and what it gave up in the transaction. Attributing the cost of all the
infrastructure for Mission Corner solely to Lot 4 would make sense if only Lot 4 would
have benefitted from such construction. But it clearly is not a proper way in this case to
determine what the Debtor gave up in the sale of Lot 4 because building the infrastructure
would have benefitted not only Lot 4 but also the rest of Mission Corner, all of which the
Debtor still owned after it sold Lot 4.

At other times, the Debtor suggested attributing a pro rata share of the projected
private and public infrastructure costs to Lot 4 based on the fraction of the total square
footage of Mission Corner that it contained, and subtracting that figure from the sale price
to determine whether the sale resulted in a net loss for the Debtor. This method follows
the method specified in Schedule F of the Debtor’s Operating Agreement for determining
whether a proposed sale price met the price minimums set in that schedule.

The Shaner appraisal dated December 4, 2006, said the Debtor’s Mission Corner

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property contained 616,810 square feet, or 14.16 acres. Shaner testified this square
footage was the amount of property left after deducting Lot 4 and the areas that would be
used for public roads under the Debtor’s development plan. The Lot 4 Sale Agreement
says Lot 4 contains 57,896 square feet. This means 674,706 square feet were available
for development after setting aside the areas to be used for public roads. Under these
figures, Lot 4 comprised approximately 8.6% of the part of Mission Corner that could be
sold for development. The estimated cost of the private and public infrastructure for
Mission Corner was approximately $3.57 million, 8.6% of which is $307,000.
Attributing only this reasonable share of the infrastructure cost to Lot 4 and, as the Debtor
proposes, subtracting it from the Lot 4 sale price would show the Debtor received only
$300,000 for Lot 4. However, the evidence indicated the Debtor would probably not
have to pay up front to build the public infrastructure, which would instead be financed
by the City and repaid over time. The private infrastructure the Debtor would have to pay
for immediately was estimated to cost almost $2 million, so Village’s share would have
been about $172,000. Subtracting only that amount from the price Village paid would
show the Debtor received only $435,908 for Lot 4.

But as Village points out, under the Lot 4 Sale Agreement and the Declarations,
Village was obliged to pay in addition to the $607,908 sale price a pro rata share of the
infrastructure costs based on the square footage of Lot 4. Consequently, it would not be
reasonable to subtract that pro rata amount from the price paid for Lot 4 to determine
what the Debtor received in return for Lot 4. Furthermore, Shaner’s December 4, 2006,

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appraisal of the Debtor’s portion of Mission Corner concluded the property was worth
$7.50 per square foot. Applying this value to Lot 4 would give a value for its 57,896
square feet of only $434,220, much less than Village paid for it; in fact, it is almost the
same as the amount that results from subtracting the private infrastructure cost from the
price Village paid.

The Debtor’s approaches of charging either some or all of the infrastructure cost
against the price Village paid to Lot 4 also asks the Court to ignore the fact building the
infrastructure would have benefitted not only Lot 4, but also all the other lots in the
Mission Corner development, all still owned by the Debtor after Lot 4 was sold.
According to Shaner’s December 4, 2006, appraisal, on October 19, 2006, the Debtor’s
share of Mission Corner in “as is” condition was worth $4.63 million, and in “as if
developed” condition (that is, if the infrastructure were built in accordance with plans and
specifications the Debtor supplied to Shaner) would have been worth $11.33 million. In
other words, if the Debtor had performed its promise to Village to build the infrastructure,
the value of the property the Debtor retained in Mission Corner would have substantially
increased — in fact, more than doubled in value. Since building the infrastructure would
have greatly increased the value of the Debtor’s part of Mission Corner and Village was
obliged to pay a reasonable share of the infrastructure costs, the Court concludes it is not
reasonable to deduct any part of the infrastructure costs from the money Village paid for
Lot 4 to determine whether the Debtor received reasonably equivalent value in return for
transferring the lot to Village.

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Besides the evidence provided by the Shaner appraisal, the Debtor’s own
Operating Agreement, signed when Bentley IV was still on friendly terms with Terra
Venture, Turner, and Sweeney, also gives some indication that the price Village paid for
Lot 4 was reasonably equivalent to the lot’s value. In Schedule F to the Operating
Agreement, Terra Venture and Bentley IV set asking prices for the various building lots
in the Mission Corner development, and agreed the listing agent could sell any of them
for 80% of the price they specified. This shows that when they signed the Operating
Agreement, they both thought 80% of the asking prices would be reasonably equivalent to
the value of any of the Mission Corner lots. Furthermore, they agreed if no lots were sold
for 80% of the asking price within six months, a Terra Venture affiliate like Village could
buy one or more lots for 70% of the asking price. Village suggested at trial this discount
was to compensate the Debtor’s managers for the work they did to prepare Mission
Corner for development, including obtaining zoning changes, preparing the plat and the
development plan, and other activities. There was also some suggestion that the first
buyer of a lot in a new development is taking the most risk that the development will
somehow fail, and therefore a discount might be required to convince the first buyer to
take the plunge. The Court concludes that Schedule F indicates the parties thought 70%
of the asking price would be a reasonable price for the first lot sold in the development.

2. Other than the obligation to build infrastructure on Mission Corner, which it had
already incurred in the Lot 4 Sale Agreement, the Debtor has not identified any
obligation it incurred or other value it gave up when its managers signed and filed
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the Declarations. In addition, the Declarations satisfied an obligation the Debtor
took on in the Lot 4 Sale Agreement to reach an agreement with Village for
easements, use restrictions, and common area maintenance.

The Debtor presented no evidence identifying any obligation it incurred or other
value it gave up by the signing and filing of the Declarations, other than the obligation to
build infrastructure that the Lot 4 Sale Agreement had already imposed on it. In addition,
the Lot 4 Sale Agreement had obligated the Debtor to reach an agreement with Village
providing for (1) easements for ingress and egress, utilities, and storm drainage and
retention, (2) restrictions on uses of the lots in Mission Corner, and (3) payment for
common area maintenance. The filing of the Declarations satisfied that obligation.
Without the Declarations, Village would have had a cause of action for breach of contract
if the Debtor had unreasonably refused to agree to the Declarations or some similar
arrangement. This means the Declarations potentially saved the Debtor from incurring a
liability. Furthermore, subjecting Mission Corner to easements, restrictions, and
covenants like the Declarations brought Mission Corner one step closer to having the as-
developed value estimated in the Shaner appraisal. The Court concludes the satisfaction
of the Debtor’s obligations under ¶ 20 of the Lot 4 Sale Agreement constituted value
reasonably equivalent to any unidentified obligation the Debtor might have incurred or
value it might have given up by agreeing to the Declarations.

4. The Court finds it unnecessary to decide whether the Debtor showed the other
requirements under K.S.A. 33-204(a)(2) or 33-205(a) were satisfied.
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In order to avoid the transfer of Lot 4 to Village or any obligations imposed on it
when the Declarations were filed, the Debtor had to show not only that it received less
than reasonably equivalent value in those transactions, but also that its remaining assets
either were unreasonably small in relation to a business or transaction it was going to
engage in, or it intended to incur or should have believed it would incur debts beyond its
ability to pay as they became due, or that it was insolvent at the time of the transactions or
became insolvent as a result of the transactions. Having concluded that the Debtor failed
to failed to show that it received less than reasonably equivalent value in either
transaction, the Court finds it unnecessary to consider whether those other elements of the
Debtor’s avoidance claims were satisfied.
Conclusion

For these reasons, the Court concludes the Debtor has failed to establish that it can
avoid either the sale of Lot 4 to Village or the filing of the Declarations for Mission
Corner. This ruling determines the only claims remaining in this proceeding.

The foregoing constitutes Findings of Fact and Conclusions of Law under Rule
7052 of the Federal Rules of Bankruptcy Procedure and Rule 52(a) of the Federal Rules
of Civil Procedure. A judgment based on this ruling will be entered on a separate
document as required by Bankruptcy Rule 7058 and Civil Rule 58(a).

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