KSB

Judge Somers

08-06086 Bison Park Development LLC v. North American Savings Bank (Doc. # 24) - Document Text

Case 08-06086 Doc# 24 Filed 05/07/09

SO ORDERED.
SIGNED this 07 day of May, 2009.


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Dale L. Somers
UNITED STATES BANKRUPTCY JUDGE

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


In Re:

BISON PARK DEVELOPMENT, LLC,
DEBTOR.

BISON PARK DEVELOPMENT, LLC,
PLAINTIFF,

v.
NORTH AMERICAN SAVINGS BANK,
DEFENDANT.

CASE NO. 07-22754-11
CHAPTER 11

ADV. NO. 08-6086

OPINION GRANTING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT

This proceeding is before the Court on defendant North American Savings Bank’s
motion for summary judgment. The Bank appears by counsel Thomas M. Franklin of the


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Franklin Law Firm. Plaintiff-Debtor Bison Park Development, LLC, appears by counsel
Jonathan A. Margolies of McDowell Rice Smith & Buchanan. The Court has reviewed
the relevant materials and is now ready to rule.

The Debtor filed the complaint commencing this proceeding to try to avoid as
fraudulent conveyances its grant to the Bank of a deed of trust for certain property and its
payment to the Bank of the bulk of the proceeds from a subsequent sale of that property.
The Debtor relies on statutes which authorize it to avoid as constructively fraudulent
transfers for which it received less than a reasonably equivalent value. The Bank has
moved for summary judgment, contending (1) it gave value for both the transfers being
attacked, and (2) the Debtor cannot prove that value was less than reasonably equivalent
to the value of the interests it transferred to the Bank. The Court concludes the Bank’s
motion must be granted.
Facts

As required by District of Kansas Local Bankruptcy Rule 7056.1(a), the Bank
began its memorandum in support of its motion with a statement of facts it contended are
not disputed. In lieu of responding to those facts as required by subsection (b) of that
local rule, the Debtor set out additional facts which were alleged in its complaint and
admitted in the Bank’s answer, and which the Bank does not dispute in its summary
judgment motion. Consequently, the Debtor is deemed to have admitted the facts stated
in the Bank’s memorandum. The Court concludes the following facts are either not in
dispute or are deemed admitted.

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In June 2005, the Debtor borrowed $1.5 million from the Bank, secured by a deed
of trust on a residential development known as Bison Park. The promissory note
(“Demand Note”) said the Debtor would pay the debt “on demand and if no demand is
made on June 9, 2006 (‘Maturity’).” The Debtor also owned, free and clear, nineteen
acres of land known as Whispering Cove, but the Bank sought no interest in that land at
that time.

Less than a month before the no-demand maturity date of the Demand Note,
Alexander Construction, Inc., an affiliate of the Debtor, borrowed money from the Bank,
secured by real estate not involved in this proceeding. At the same time, the Debtor gave
the Bank a deed of trust for Whispering Cove. This deed of trust stated it was to secure
up to $1 million owed to the Bank at that time or in the future by the Debtor, Alexander
Construction, Inc., or “Troy A. Ruf and/or Nancy Ruf.” (Troy Ruf is an individual
member of the Debtor; the materials submitted do not indicate whether Nancy Ruf has
any interest in the Debtor). For approximately five months before giving the Bank the
Whispering Cove deed of trust, the Debtor was not selling any lots in Bison Park, and its
interest payments on the Demand Note were irregular and late, so the Bank wanted
further security for the nearly-matured Demand Note.

On August 8, 2007, approximately fourteen months after it gave the Bank the
Whispering Cove deed of trust, the Debtor sold the Whispering Cove property. The Bank
required the Debtor to give it $626,355.28 from the proceeds of that sale, which the Bank
applied to the balance owed on the Demand Note.

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The Debtor filed a Chapter 11 bankruptcy petition on December 6, 2007, four
months after it sold the Whispering Cove property. At that time, the balance owed on the
Demand Note was $736,606.02.

In July 2008, the Debtor filed the complaint that commenced this proceeding. It
alleged it had received less than reasonably equivalent value in return for giving the
Whispering Cove deed of trust to the Bank, so it could avoid that transfer under the
Missouri version of the Uniform Fraudulent Transfer Act, through § 544(b) of the
Bankruptcy Code, and under § 548(a), and consequently, could also avoid the later
payment of the bulk of the Whispering Cove sale proceeds to the Bank. In its summary
judgment motion, the Bank contends that it gave the Debtor value for the transfer, and
that the Debtor has produced no evidence that could show the value the Bank gave was
not reasonably equivalent to the value of the deed of trust the Debtor gave the Bank.
Discussion

1. Summary judgment rules
Under the applicable rules of procedure, the Court is to grant summary judgment if
the moving party demonstrates that there is “no genuine issue of material fact” and that
the party “is entitled to a judgment as a matter of law.”1 The substantive law identifies
which facts are material.2 A dispute over a material fact is genuine when the evidence is
such that a reasonable factfinder could resolve the dispute in favor of the party opposing

1Fed. R. Civil P. 56(c), made applicable by Fed. R. Bankr. P. 7056.

2Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).

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the motion.3 In adjudicating disputes, bankruptcy courts usually both determine the law
and find the facts. In deciding a summary judgment motion, though, the Court is limited
to its role of deciding legal questions, not weighing the evidence and resolving factual
disputes, but merely determining whether the evidence favorable to the non-moving party
about a material fact is sufficient to require a trial4 at which the Court would act in its
factfinding role. Summary judgment is inappropriate if an inference can be drawn from
the materials properly submitted either to support or oppose the motion that would allow
the non-moving party to prevail at trial.5

The substantive law’s allocation of the burden of proof also affects the Court’s
analysis of a summary judgment motion. The party asking for summary judgment has the
initial burden of showing that no genuine issue of material fact exists.6 But if the moving
party does not have the burden of proof on a question, this showing requires only pointing
out to the Court that the other party does not have sufficient evidence to support a finding
in that party’s favor on that question.7 When such a showing is made, the party with the
burden of proof must respond with affidavits, depositions, answers to interrogatories, or
admissions sufficient to establish that a finding on the question could properly be made in

3Id.

4Id. at 249-50.

5See id. at 248.

6Shapolia v. Los Alamos Nat'l Lab., 992 F.2d 1033, 1036 (10th Cir. 1993).

7Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986).

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the party’s favor at trial.8

2. The Debtor’s claim under the Missouri Uniform Fraudulent Transfer Act9
In the first count of its complaint, the Debtor relies on two sections of the Missouri
Uniform Fraudulent Transfer Act (MUFTA) that authorize a creditor of a debtor to avoid
the debtor’s transfer of something if the debtor received less than a reasonably equivalent
value in return for the transfer, and certain other criteria are met. The first is § 428.024,
which provides in relevant part:

1. 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 incurred, if the debtor made the transfer or incurred the obligation:
(1) With the actual intent to hinder, delay, or defraud any creditor of the
debtor; or
(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 he would incur, debts beyond his ability to pay as they
became due.
The second is § 428.029, which provides in relevant part:

1. 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.
In its summary judgment motion, the Bank contends the Debtor will not be able to prove

8Celotex, 477 U.S. at 324; Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574,
586 (1986).
9Mo. Ann. Stat. §§ 428.005 to 428.059 (West 2009).
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at trial that it received less than a reasonably equivalent value in return for the Whispering
Cove deed of trust.

The Missouri Court of Appeals has declared that a party seeking under
§ 428.024(1)(1) of the MUFTA to avoid a transfer as having been made with the actual
intent to hinder, delay, or defraud any creditor has the burden of proof.10 This Court
believes the same burden of proof would likewise be imposed on a party seeking to avoid
a transfer under either § 428.024(1)(2) or § 428.029(1) as having been constructively
fraudulent because the debtor did not receive a reasonably equivalent value in return for
the transfer being attacked.

In its response to the Bank’s motion for summary judgment, the Debtor alleges it
received less than a reasonably equivalent value in return for giving the Bank the
Whispering Cove deed of trust because the deed of trust provided “no value whatsoever”
to the Debtor. Although the deed of trust secured other parties’ debts to the Bank, the
deed of trust says it also secured any debts the Debtor owed to the Bank, which included
the Debtor’s Demand Note when it gave the deed of trust.

Under the MUFTA, “Value is given for a transfer or obligation if, in exchange for
the transfer or obligation, . . . an antecedent debt is secured.”11 The Bank’s documents
show the deed of trust secured the Debtor’s Demand Note, as well as other parties’ debts
to the Bank, so there can be no doubt the Bank gave the Debtor “value” for the deed of

10Bueneman v. Zykan, 52 S.W.3d 49, 54 (Mo. Ct. App. 2001).

11Mo. Ann. Stat. § 428.109(1) (West 2009).

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trust, as value is defined in the MUFTA. Since the Bank has shown the Debtor’s
assertion it received absolutely no value in return for the deed of trust is wrong, and has
further claimed in its summary judgment motion that the Debtor cannot show the value it
did receive was less than reasonably equivalent to the value of the deed of trust, the
Debtor was obliged to produce materials showing it had evidence that could support a
finding the value was not reasonably equivalent.12 The Debtor has produced nothing to
fulfill that obligation. Consequently, the Bank is entitled to summary judgment denying
the Debtor’s claim under the MUFTA to avoid the Whispering Cove deed of trust.

3. Debtor’s claim under § 548(a)(1)(B)
In the second count of its complaint, the Debtor relies on § 548(a)(1)(B) of the
Bankruptcy Code, which authorizes a Chapter 11 debtor-in-possession to avoid a transfer
it made prepetition if it received “less than a reasonably equivalent value”13 in return for
the transfer.14 The party seeking to avoid a transfer under § 548(a)(1)(B) has the burden
of proving the transfer was made for less than a reasonably equivalent value.15 In relevant
part, § 548(d)(2)(A) provides that under § 548, “value” means “property, or satisfaction

12Celotex, 477 U.S. at 324; Matsushita Elec. Indus. Co., 475 U.S. at 586.

13§ 548(a)(1)(B)(i).

14Any one of four other facts must also have been true at the time of the transfer, see
§ 548(a)(1)(B)(ii)(I) to (IV), but the Bank’s motion does not attack the Debtor’s ability to prove one of
those facts.

15Nordberg v. Arab Banking Corp. (In re Chase & Sanborn Corp.), 904 F.2d 588, 593-94 (3d Cir.
1990). In 1990, the “reasonably equivalent value” language was labeled as § 548(a)(2)(A), but it has
since been redesignated as § 548(a)(1)(B).

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or securing of a present or antecedent debt of the debtor.” Under this definition, the Bank
undoubtedly gave the Debtor at least some value in return for the Whispering Cove deed
of trust because the deed of trust secured the Debtor’s antecedent debt to the Bank. The
Debtor’s mistaken allegation that it received no value at all in return for the deed of trust
therefore must fail as a matter of law.

The Bank has shown it gave, by definition under § 548(d)(2)(A), at least some
“value” for the Whispering Cove deed of trust and has pointed out that the Debtor will not
be able to prove that value was not reasonably equivalent to the value of the deed of trust
the Debtor gave it. In response, as the party with the burden of proof, the Debtor was
obliged to produce at least some evidence that could support a finding in its favor on the
question whether the value the Bank gave was less than reasonably equivalent to the
value of the deed of trust.16 Because the Debtor failed to produce any evidence on that
score, the Debtor’s entire claim under § 548(a)(1)(B) fails, and the Bank’s request for
summary judgment on that claim must be granted.

4. Debtor’s claim to recover the Whispering Cove sale proceeds
The Debtor’s claim to recover the $626,355.28 it gave the Bank from the proceeds
of its sale of the Whispering Cove property depends on its ability to avoid the deed of
trust transfer. Since the Court has concluded the Debtor cannot avoid the deed of trust
transfer, the Debtor’s effort to recover the sale proceeds must also fail. The Bank applied

16Celotex, 477 U.S. at 324; Matsushita Elec. Indus. Co., 475 U.S. at 586.
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its share of the sale proceeds dollar for dollar against the Debtor’s debt to it, so any effort
to suggest the transfer of the proceeds was itself made for less than a reasonably
equivalent value could not succeed.

Conclusion

For these reasons, North American Savings Bank’s motion for summary judgment
must be granted.

The foregoing constitutes a decision under Rule 7056 of the Federal Rules of
Bankruptcy Procedure and Rule 56(c) of the Federal Rules of Civil Procedure. A
judgment based on this ruling will be entered on a separate document as required by
FRBP 9021 and FRCP 58.

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