KSB

12-10635 Bowling (Doc. # 90)

In Re Bowling, 12-10635 (Bankr. D. Kan. Aug. 28, 2014) Doc. # 90

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SO ORDERED.
SIGNED this 28th day of August, 2014.

 

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS


IN RE:
CHARLES TDebtor.
IMOTHY BOWLING,
)
)
)
)
Case No. 12-10635Chapter 13

__________________________________________)

ORDER ON DEBTOR’S COUNSEL’S FIRST FEE APPLICATION FOR
ADDITIONAL COMPENSATION (Dkt. 77)

A chapter 13 debtor’s lawyer may be granted reasonable fees for representing
the debtor in the case, but the lawyer’s work must be necessary and beneficial to the
case’s completion and not duplicative. The reasonableness of the fees requested must
be measured against the provisions of 11 U.S.C. § 330(a)(3)(A)–(F). In this small
case,1 Eron Law Office (the “Firm”), applied for fees of $11,855, nearly quadrupling
the presumptive chapter 13 attorney’s fee of $3,000 that is customarily awarded in

1 The debtor listed assets of $4,140 and debts of $38,094. Filed claims totaled $21,473.

1

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this division.2 I independently reviewed the Firm’s fee application and its itemized
billing statements and applied the various provisions of § 330(a)(3), taking particular
notice of how much time the Firm’s members spent on various activities, the necessity
and benefit of the services at the time they were rendered, and lack of complexity this
case presented. Based on that review, I allow the application in part and deny the
balance.

Facts

Charles Timothy Bowling filed this case after the Kansas Department of
Revenue (KDOR) seized personal property associated with his operation of a gift shop
pursuant to tax warrants on March 19, 2012.3 He owed KDOR unpaid sales taxes in
excess of $20,000. The following day, after consultation with David Eron, Bowling
filed a pro se chapter 13 petition. Eron began acting on Bowling’s behalf on March 21
and entered his appearance on March 23. Bowling agreed to pay the Firm $3,350 for
representation in the chapter 13 over 12 months. The Firm’s Fed. R. Bankr. P. 2016(b)
disclosure referred to the $3,000 fee as the “base fee – additional charges may apply”
as governed by the retainer agreement. The retainer agreement is not in the record.
In return for the $3,000 base fee, Eron agreed to render legal service “for all aspects

2 Of the $11,855 total, all was attributable to attorney fees save $30 in expenses for which
reimbursement is sought.
3 According to the statement of financial affairs (SOFA), item 18, the gift shop ceased operation
December 31, 2011. But item 1 of the SOFA reflects that debtor ran the gift shop as a sole
proprietorship in 2012 (generating income of about $3,400) until the KDOR executed its tax
warrants on the personal property at the gift shop. The billing statements suggest that debtor
continued to operate the gift shop during the pendency of the bankruptcy, at least through July of
2012 when it appears he vacated the leased premises at Chisholm Trail. See Dkt. 77-1, p. 6.

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of the bankruptcy case,” including “preparation and filing of any petition, schedules,
statements of affairs and plan which may be required” and “representation of the
debtor at the meeting of creditors and confirmation hearing, and any adjourned
hearings thereof.”4

The schedules filed in this case reflect assets of $4,140.50 and debts of
$38,094.12. Bowling is a conductor/engineer for the Union Pacific railroad, is married,
and has three dependent children.

Within days of the bankruptcy filing, Eron negotiated an agreed adequate
protection order with the KDOR which provided that the pre-confirmation adequate
protection payments would be paid to the chapter 13 trustee upon confirmation of
Bowling’s plan.5 Eron’s associate Justin Leck then completed and filed the remaining
bankruptcy schedules and Bowling’s chapter 13 plan on June 13, 2012.6 The plan
proposed to pay $450 for 60 months for a total of $27,000 and provided for payment
of the KDOR’s tax claim in full. Debtor’s disposable income calculation on Form 22C
yielded a negative $27.87.7 Bowling had no other debts secured by real estate or a
principal residence. He had no debts secured by vehicles or other personal property.
Only one objection to confirmation of the chapter 13 plan was filed – that of the
chapter 13 trustee. 8 She asserted feasibility, disposable income, and bad faith

4 Dkt. 17.
5 Dkt. 11.
6 Dkt. 18.
7 Dkt. 17, p. 41, line 59.
8 Dkt. 26.


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objections as well as debtor’s failure to provide his 2011 tax returns.

Six months later, in late 2012, the trustee filed a motion to compel under local
rule seeking debtor’s compliance with the trustee’s request for information and
documentation supporting his claimed transportation expense and charitable
contributions, information that was relevant to the trustee’s disposable income
objection.9 The trustee had requested this information from debtor at the § 341
meeting and followed up with written requests to the debtor or debtor’s counsel on at
least five more occasions after the § 341 meeting. After numerous continuances of the
confirmation hearing, Bowling’s chapter 13 plan and the trustee’s objection were
announced as resolved at the March 19, 2013 confirmation hearing and an order
confirming the plan as modified was entered on April 25, 2013.10 The confirmed plan,
as modified, provided for an increase of $145 in the monthly plan payment to pay
disposable income of $8,373.11

On April 17, 2014, the Firm filed this First Application for Compensation for
the period March 1, 2012 to March 31, 2014 in the amount of $11,855 (which included
$30 of expenses), together with the itemized monthly billing statements generated
during the period.12 Bowling objected to the Application and requested a hearing, but

9 Dkt. 48. See D. Kan. L.B.R. 4002.2(a) requiring compliance with the trustee’s requests for
information within 14 days.
10 Dkt. 70. Those continuances of the confirmation hearing were due in large part to debtor’s failure
or lengthy delay in responding to the trustee’s requests for information and documentation. Two of
the continuances were due to the terminal illness of debtor’s wife.
11 An amended confirmation order entered on July 15, 2013, specified that the Firm’s attorney fees
paid through the plan were $3,000, plus an additional $350 closing fee. Dkt. 72.
12 Dkt. 77.


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did not specify the nature of his objection.13 He appeared at the hearing held on July
9, 2014. His chief complaint was that the fees are unreasonable because he
continually dealt with a different person in the Firm and he had to bring them “up to
speed” when he communicated with them. He believes that a standard fee in a
chapter 13 case should be around $4,000.

Analysis

Bankruptcy courts independently evaluate the propriety of fees requested by
debtor’s counsel.14 Section 330(a)(4)(B) of the Code authorizes the court to allow
“reasonable compensation” to a debtor’s attorney for “representing the interests of
the debtor in connection with the bankruptcy case.” To determine whether the fees
requested are indeed “reasonable,” we consider the benefit and necessity of the
services rendered along with the nonexclusive factors listed in § 330(a)(3).15 The
applicant bears the burden of establishing the reasonableness of the compensation
sought.16 Section 330(a)(3)(C) requires that we consider not only whether the services
were “necessary,” but whether they were necessary or beneficial to completion of the
case at the time they were rendered. The factors listed in §330(a)(3) are substantially
similar to those applied to attorney fee applications in every other forum. They are –

(A) the time spent on such services;
(B) the rates charged for such services;
13 Dkt. 79.
14 In re Tahah, 330 B.R. 777, 780-81 (10th Cir. BAP 2005).
15 In re Rogers, 401 B.R. 490, 492-93 (10th Cir. BAP 2009).
16 Id. at 493-94.


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(C) whether the services were necessary to the administration of, or beneficial
at the time at which the service was rendered toward the completion of, a case
under this title;
(D) whether the services were performed within a reasonable amount of time
commensurate with the complexity, importance, and nature of the problem,
issue, or task addressed;
(E) with respect to a professional person, whether the person is board certifiedor otherwise has demonstrated skill and experience in the bankruptcy field;
and
(F) whether the compensation is reasonable based on the customary
compensation charged by comparably skilled practitioners in cases other than
cases under this title.17
Contested chapter 13 fee applications are rare in this court because, in 2009, I

increased the presumptive fee in a chapter 13 case in this Division from $2,500 to

$3,000.18 As I noted then, the presumptive fee is the maximum allowable fee a

debtor’s lawyer can receive without submitting a detailed fee application. It is

intended to cover routine legal services in chapter 13 cases from initial consultation

and preparation of the petition through plan confirmation. Never have I barred

counsel who believe they are entitled to more than the presumptive fee from seeking

further fee allowance provided a proper fee application is submitted.19

All but $200 of the requested fees were billed before confirmation of the plan

over a year ago. Other than the instant Application, there have been no other

17 11 U.S.C. § 330(a)(3). See also In re Permian Anchor Services, Inc., 649 F.2d 763 (10th Cir.
1981)(adopting the lodestar analysis and twelve Johnson factors set forth in Johnson v. Georgia
Highway Express, Inc., 488 F.2d 714, 717-19 (5th Cir. 1974) for determining the reasonableness of
fees); In re Lederman Enterprises, Inc., 997 F.2d 1321, 1323 (10th Cir. 1993).
18 See In re Hueser, No. 09-10601, 2009 WL 2849607 (Bankr. D. Kan. Aug. 31, 2009) (three
companion cases involving consumer chapter 13 cases).
19 In Rogers, supra, the BAP held that once the attorney files a fee application, they are no longer
entitled to the “standard fee.” 401 B.R. at 494 (noting that the presumptive fee is designed to be the
maximum fee allowed without a detailed fee application and not a minimum fee to be awarded in all
cases).

Case 12-10635 Doc# 90 Filed 08/28/14 Page 6 of 13


substantive post-confirmation proceedings or motions in the case. The itemized
statements do not contain a recapitulation of time spent and fees billed for each
timekeeper that contributed to the total fee. The Court’s own summary allocates the
time and fees among the attorneys and law Firm staff as follows:

Attorney or Legal Assistant Hours Fees
Attorney DPE 8.80 1,850.00
Attorney EKW 4.50 900.00
Attorney JRL 22 2,800.00
Attorney JWR 25.40 5,120.00
Legal Assistant ECD 12.10 907.50
Legal Assistant BAM 2.8 210.00
Legal Assistant AB .50 37.50
Total Fees Billed $11,825.00


The hourly rates charged are not excessive. They compare favorably to what
attorneys in this area charge for work done outside of bankruptcy. Both Mr. Eron and
Mr. Rockett have considerable experience in this court and, while neither Mr. Leck
nor Ms. Wilson is as experienced, they both could handle a routine chapter 13 case
like this one.

This case calls for the application of subparagraphs (a)(3)(C), (a)(3)(D), and
(a)(4). Section 330(a)(4)(A) disallows compensation for unnecessary duplication of
services or services that were neither likely to benefit the estate or necessary to its
administration. Subparagraph (a)(3)(C) requires that the work done must have been
necessary or beneficial to the completion of the case at the time it was done.
Subparagraph (a)(3)(D) requires that the time spent be reasonable “commensurate
with the complexity, importance, and nature of the problem.”

What made this case so expensive? There are some general causes. The Firm’s

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minimum billing increment appears to be .2, or 12 minutes, potentially inflating fees
for routine work like leaving a phone message on the recipient’s phone or sending a
brief e-mail to the intended recipient. There are a few instances of “batched entries”
that I ordinarily disallow, but, in general, the vast majority of time entries are less
than .4 hours and when describing multiple tasks within a single time entry, those
tasks tend to be closely related.20 There are instances of duplication of services that
are attributable to two or three lawyers and/or staff participating in intraoffice
conferences or reporting case status or progress to one another. Indeed, all of the
attorneys and three legal assistants in the Firm touched the Bowling case at various
times.21 While these communications may have been expedient, they increased the
bill. That said, the Firm exercised billing judgment by reducing or deleting charges
for some services, including several of the types of entries just noted, writing off
$3,127.50 in fees before submitting this Application.22

This is neither a big nor a complex case. Mr. Eron worked out the KDOR issues
without formally seeking court relief from the seizure or the turnover of the
property.23 Bowling hoped to halt further enforcement of the KDOR’s claim against

20 See In re Recycling Industries, Inc., 243 B.R. 396, 406 (Bankr. D. Colo. 2000) (practice of “lumping”
[or batching] tasks into a single time entry is “universally disapproved” by bankruptcy courts.)
21 Attorney Leck’s involvement in the case ended in December of 2012 and Attorney Rockett’s
participation began in January of 2013. Attorney Wilson’s involvement in the case was fairly limited
to court appearances for continuing the hearing on confirmation and for attending the § 341 meeting
of creditors.
22 This figure is comprised of services that were “no charge” and fees that were written off or
reduced. The bulk of the write-offs were attributable to attorneys Leck ($1,137.50) and Rockett
($1,600).
23 As noted previously, debtor apparently continued operation of the gift shop as a sole
proprietorship to some degree until the end of July, 2012. At that point, he vacated the leased

Case 12-10635 Doc# 90 Filed 08/28/14 Page 8 of 13


him and to enable him to repay the liquidated tax claim over a 5-year period. The
KDOR’s claim against debtor was resolved and its treatment in the bankruptcy was
negotiated three days after the petition date by a joint motion for adequate protection
providing for monthly payments of $362.44.24 The total charge for this work was
$440.25 There were no continuing operating issues.

After the adequate protection agreement was reached with KDOR, the Firm
proceeded to prepare the schedules, statement of financial affairs, creditor matrix,
and the plan. Time entries related to these tasks from April to early July, 2012 total
approximately 17 hours and $1,955. 26 Some of the time entries involve office
conferences between multiple law office staff and unnecessarily increased the time
and costs. Time and fees related to the § 341 meeting are approximately 3.3 hours for
$597.50.27 Some of the time entries on June 20, 2012 appear to be duplicative and
one time entry of attorney Leck is a batched entry of 1.5 hours. By September 30,
2012, the Firm had billed Bowling $5,732 even though the plan had never been
confirmed.

Much additional time was spent on responding to informational requests made
by the trustee in addressing her feasibility, disposable income, and good faith

premises. See note 3, supra.
24 As the joint motion represented, the monthly payment “represents full payment of KDOR’s claim
over 60 months with interest at 3% per annum.” Dkt. 6, p. 2, ¶ 7.
25 Per the March 2012 fee statement, the agreed upon treatment of the KDOR’s tax claim was
accomplished in 2.20 hours and $440 in attorney fees. Dkt. 7-1, p. 1.
26 Dkt. 77-1, pp. 2-6. The figure for total fees takes into account the reductions made by counsel
exercising billing judgment. See Dkt. 77-1, p. 6.
27 Dkt. 77-1, pp. 2, 4.


Case 12-10635 Doc# 90 Filed 08/28/14 Page 9 of 13


objections. Because she received no responses to her informal requests for
information, the trustee filed a motion to compel the delivery of the information, most
of which related to transportation expenses claimed by Bowling and charitable
contributions. It’s worth noting that the Bowlings have previously filed jointly for
chapter 13 relief in this court and Mr. Bowling should have some level of expectation
about what he would be required to tell the trustee about their expenses.28 Counsel
was certainly obligated to remind them of that obligation.

The Firm’s statements for the period from late September of 2012 through
February of 2013 reflect one lawyer’s attending the initial confirmation hearing on
September 12, 2012, followed by several months of the Firm’s attempts to secure
transportation expense information from Bowling in order to satisfy the trustee’s
requests. Then, in February, the Firm expended some $1,762 in time in further
dealing with the trustee’s eminently reasonable request for income tax returns and
expense information supporting the debtor’s claimed transportation and charitable
contribution expenses. The Firm also sought and twice secured a continuance of the
evidentiary hearing on confirmation because Mrs. Bowling was ill with cancer. It is
unclear whether the trustee got the information she sought in February.

The final push to confirmation occurred in March. I set an evidentiary hearing
for March 19 and the Firm, principally Mr. Rockett, geared up for trial, billing more
than $2,500 for that work. The trial did not happen, though, because the parties

28 See Case No. 07-11205, filed in May of 2007 and converted to chapter 7 in May of 2008. The
debtors received a chapter 7 discharge in 2010.

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reached an agreement that they announced on trial day. In April, the trustee
withdrew the Motion to Compel.

The nearly year-long passage of time between filing the chapter 13 plan and
confirming the plan was largely due to Mrs. Bowling’s illness and the debtor’s delay
in responding to the trustee’s request for information and documentation that
supported the debtor’s projected disposable income calculation. After she filed a
motion to compel, the trustee either got what she sought or Bowling was unable to
substantiate his expenses, and the parties quickly settled the trustee’s confirmation
objection by the debtor increasing his plan payment $145 per month.

As noted, there were no formal proceedings begun to cause KDOR to turn over
the seized business assets – that was accomplished without Court intervention. But
considerable time appears to have been spent on the trustee’s document requests, due
in large part to the debtor’s failure to provide them timely. And, once the matter was
finally set for trial, counsel certainly had to prepare for trial and, to the extent that
time was commensurate with the complexity and novelty of the tasks at hand, it
should be compensated. Only three claims were filed in the case and debtor made no
claims objections. The trustee objected to debtor’s claim of exemption in two vehicles
but debtor amended Schedule C the same date as the trustee’s objection to delete one
of the vehicles, and the trustee withdrew her objection. Debtor was not required to
defend any motions for relief from the automatic stay nor motions to dismiss for
nonpayment of plan payments. In short, the anticipated trial boiled down to the
amount of Bowling’s disposable income, the issue that the trustee had raised from

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the outset.

The Firm charged for a total of 45 hours and $5,922 from October of 2012
through April of 2013.29 Not much was accomplished compared to the time spent;
there were several appearances at confirmation hearings and continuances. Some of
the delay was attributable to debtor’s failure to provide information. Numerous
attorneys billed time regarding confirmation and much time was devoted to
interoffice conferences and requests to the debtor. Given the primary issue driving
confirmation of the plan and the lone objection to confirmation filed by the trustee,
the time incurred on confirmation is simply not reasonable.30

Conclusion

The Firm spent more time than was necessary to complete this case. Some of
this is due to the inefficiencies and inevitable duplication of services that occurs when
four lawyers and several staff members “touch” a file. Some of it is due to Bowling’s
failure or inability to respond timely to the trustee’s information requests. Some of it
is simply duplicative. In the absence of any other evidence justifying these charges
individually, I am left to balance the Firm’s right to recover reasonable compensation
for the benefit it conferred on the debtor and the estate with the debtor’s right to be
assessed a fair fee, consistent with the Bankruptcy Code.31 In striking that balance,

29 Dkt. 77-1, pp. 4, 6, 8-19.

30 The Court notes that approximately one-fourth of attorney Rockett’s time was attributable to
preparation of the evidentiary hearing on confirmation, which hearing of course, was never held.
31 In applying the Code’s fee provisions, I take no notice that (1) the trustee believes the allowance of

the application in full would render the plan unfeasible; or (2) that the Firm has since moved towithdraw. Neither point bears on the reasonableness, necessity or benefit of the Firm’s services

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I am mindful that some of the fees here were caused by the debtor’s circumstances in
being unable, for whatever reason, to provide the information the trustee requested.
Considering what §330(a)(3) requires me to consider, I conclude that the $5,732
charged from the outset of the case through September of 2012 should be reduced by
50%, or $2,866, because of duplication of services and excessive time spent
assembling the schedules and the plan, viewed in light of the lack of complexity of
the case. Likewise, I reduce the fees claimed from October of 2012 through April of
2013 of $5,922 by 50%, or $2,961, for the same reasons. These reductions total $5,827.
The remainder of the fees charged, $5,998, and the $30 filing fee for an amended
creditor matrix, are approved. The Firm’s fee and expense application is therefore
allowed in the amount of $6,028; the balance of the application is denied.

# # #

under § 330.

Case 12-10635 Doc# 90 Filed 08/28/14 Page 13 of 13

13-05196 Morris v. GreenPoint Credit LLC et al (Doc. # 77)

Morris v. GreenPoint Credit LLC et al, 13-05196 (Bankr. D. Kan. Jul. 8, 2014) Doc. # 77

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SO ORDERED.
SIGNED this 7th day of July, 2014.

 

DESIGNATED FOR ONLINE PUBLICATION ONLY

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS


IN RE:

)
MARK ROBERT KOLARIK, ) Case No. 13-11985
KELLY LYNN KOLARIK, ) Chapter 7

)
Debtors. )
__________________________________________)
)


J. MICHAEL MORRIS, Trustee,
)
)
Plaintiff, )
vs. ) Adv. No. 13-5196
)
GREENPOINT CREDIT, LLC; )
GREEN TREE SERVICING, LLC; )
ROBERT E. ST. CLAIR and )

R. ANNE ST. CLAIR; )
MARK R. KOLARIK and )
KELLY L. KOLARIK, and )
BANK OF AMERICA, N.A., )
)
Defendants. )
__________________________________________)


1

Case 13-05196 Doc# 77 Filed 07/07/14 Page 1 of 7


ORDER DENYING ST. CLAIR DEFENDANTS’ CROSS MOTION TO
DISMISS OR FOR SUMMARY JUDGMENT (Dkt. 53)


The defendants Robert and Anne St. Clair have filed their separate cross
motion to dismiss the chapter 7 trustee’s strong arm complaint to avoid GreenPoint
Credit, L.L.C.’s allegedly unperfected lien on a manufactured home that the St. Clairs
sold to the debtors Mark and Kelly Kolarik under a 2004 installment contract.1 The
St. Clairs move for relief under Fed. R. Civ. P. 12(b)(6), but proffer material outside
the complaint which allows the court to consider their motion as one for summary
judgment.2

The Complaint

Exercising his strong-arm powers as a hypothetical lien creditor under §
544(a), the trustee alleges that the Kolariks entered into a prepetition contract of
purchase and sale with the St. Clairs in July 2004 for the purchase of a 1997 Skyline
mobile home. He further alleges that GreenPoint may claim a lien on the mobile
home that was granted by the St. Clairs’ to secure their purchase money indebtedness
to GreenPoint and that this lien was unperfected on the date of the Kolariks’
bankruptcy filing, July 31, 2013.

The Applicable Legal Standard

1 On March 18, 2014 Green Tree Servicing, LLC previously filed a motion to dismiss or
alternatively for judgment on the pleadings under Fed. R. Civ. P. 12(b)(6) and (c). See Adv.
Dkt. 19. The Court issued its Order Denying Green Tree’s motion (Green Tree Order) on
July 2, 2014 at Dkt. 75.
2 Adv. Dkt. 53 and 54. The St. Clairs appear by their attorney Samantha M.H. Woods. The
chapter 7 trustee J. Michael Morris personally appears.


Case 13-05196 Doc# 77 Filed 07/07/14 Page 2 of 7


As the Court explained in the Green Tree Order, a Rule 12(b)(6) motion to
dismiss for failure to state a claim upon which relief may be granted is generally
governed by the facial plausibility standard enunciated in the Supreme Court’s
Twombly and Iqbal decisions and is confined to the allegations contained in the
complaint.3 But where, as here, the litigants have presented exhibits and materials
outside the complaint in their motion papers, the Court may treat the motion as one
for summary judgment.4 The St. Clairs attached the Contract of Purchase and Sale
between them and the Kolariks bankruptcy Schedules C and G, and a Title and
Registration Receipt for the subject mobile home. As with the Green Tree Order, we
consider these additional documents and treat the motion as one for summary
judgment. That requires me to determine whether material facts are in dispute and
whether the undisputed facts entitle the St. Clairs to judgment as a matter of law on
the trustee’s complaint.

Facts

Most of the undisputed facts in this matter are set forth in the Green Tree
Order and need not be repeated here. In support of their motion, and in addition to
the documents I’ve already considered in the Green Tree Order, the St. Clairs offer a
copy of a Title and Registration Receipt dated January 22, 2004 and related title
documents that refer to the manufactured home. These are found at Exhibit C to their

3 Fisher v. Lynch, 531 F. Supp. 2d 1253, 1260 (D. Kan. 2008); Wagner Equip. Co. v. Wood,
893 F. Supp. 2d 1157, 1159-60 (D. N.M. 2012).
4 Fed. R. Civ. P. 12(d).


Case 13-05196 Doc# 77 Filed 07/07/14 Page 3 of 7


motion.5 The trustee presumably joined the St. Clairs as party defendants because
they claim an interest in the subject mobile home as owners of legal title, a fact which
is not disputed by any party. As such, their interest must be adjudicated relative to
the other parties in this action who claim an interest in the mobile home. The St.
Clairs have not pleaded any cross claims against their purchasers, the Kolariks, or
any other defendants. Based upon their bankruptcy schedules, the Kolariks remain
in possession of the mobile home, but the record is silent on the status of the Kolariks’
payments under the Contract of Purchase and Sale.

Analysis

As did Green Tree Servicing, the St. Clairs assert that the mobile home in
question is not property of the estate because the Contract of Purchase and Sale for
the mobile home between them and the Kolariks is an executory contract that was
not timely assumed or rejected and is therefore deemed rejected by operation of §
365(d)(1) and that, as a consequence of that, the mobile home is no longer property of
the estate under § 365(p). Thus the trustee has no avoidance rights. I rejected this
argument in the Green Tree Order because I concluded that the Contract of Purchase
and Sale is neither a lease nor an executory contract, but is instead an installment
sales contract that falls outside of § 365(d)(1). I reached this conclusion because,
under the Contract, the Kolariks, as buyers, received the right to possess the mobile
home and incurred the attendant burdens of ownership including being responsible

5 Adv. Dkt. 54-3, Ex. C.

Case 13-05196 Doc# 77 Filed 07/07/14 Page 4 of 7


for paying property taxes and insurance premiums, and for maintaining the property.
In describing the terms and effect of the Contract between the St. Clairs and the
Kolariks in his brief on this motion, the trustee correctly notes that “the [Kolariks]
acquired all the ‘beneficial incidents of ownership’ upon entering into the Contract,
and were clearly the ‘equitable owners,” with the St. Clairs being the ‘legal owners.’”6
Thus, the Kolariks’ equitable ownership interest became property of the estate upon
their bankruptcy filing. A more thorough treatment of this issue can be found in the
Green Tree Order and need not be repeated here.

Likewise, in the Green Tree Order, I also addressed whether GreenPoint’s or
Bank of America’s purported lien on the mobile home was properly perfected. I
rejected Green Tree’s attempt to extend the substantial compliance doctrine to perfect
a lien described by the Tenth Circuit in In re Charles7 because neither GreenPoint
nor Bank of America is identified anywhere on the Kansas Department of Revenue
title search report for the mobile home, making this case factually different from
Charles.

But with the St. Clairs’ submission of Exhibit C -- a Title and Registration
Receipt on the mobile home, I must consider whether its content should change my

6 Adv. Dkt. 60, p. 9. See also Roberts v. Osburn, 3 Kan. App.2d 90, 94-589 P.2d 985 (1979),
rev. denied 225 Kan. 845 (discussing effect of 15-year contract for sale of real estate where
deed placed in escrow and legal title remained in the sellers).
7 Morris v. The CIT Group/Equip. Financing, Inc. (In re Charles), 323 F.3d 841 (10th Cir.
2003).


Case 13-05196 Doc# 77 Filed 07/07/14 Page 5 of 7


prior conclusion.8 The St. Clairs do not attempt to authenticate the documents in
Exhibit C or explain their meaning. The exhibit contains one title and registration
receipt that indicates it is a “reissue title” dated January 22, 2004 upon which the St.
Clairs are identified as the owners and “BAHS Bank of America FSB” is the
lienholder. The document does not provide a registration expiration date but instead
notes: “DISPOSED VEHICLE.” Another title and registration receipt contained in
Exhibit C is a duplicate title dated March 22, 2002 again showing the St. Clairs as
owners and “BAHS Bank of America FSB” as lienholder. Exhibit C also contains what
appear to be inquiry or search reports from the KDOR on the mobile home. These
reports reflect different title numbers and issuance dates. All refer to the St. Clairs
as owners but not all refer to “BAHS Bank of America FSB” as the lien holder. None
of these documents comprising Exhibit C necessarily show that GreenPoint or BAHS
Bank of America FSB was the lienholder as of the date of the Kolariks’ bankruptcy
filing, July 31, 2013.9 Indeed one of the KDOR search reports dated January 10, 2014
shows no lien on the mobile home.10 And the trustee’s search report on the mobile
home appears to show no lienholder as of September 3, 2013.11 In short, whether
Bank of America’s lien was perfected by notation on the mobile home’s title as of the
date of the bankruptcy remains a factual dispute that cannot be resolved by summary

8 Adv. Dkt. 54-3.
9 The Contract of Sale and Purchase between the St. Clairs and the Kolariks was entered
into on July 20, 2004.
10 Adv. Dkt. 54-3, p. 3.
11 Adv. Dkt. 60-1 (Ex. 1).


Case 13-05196 Doc# 77 Filed 07/07/14 Page 6 of 7


judgment.

Finally, the St. Clairs argue that if their sale to the Kolariks is secured, their
lien is also perfected by applying the In re Charles substantial compliance doctrine.
But the trustee in this avoidance action is not seeking to avoid a lien on the mobile
home held by the St. Clairs to secure the Kolariks’ purchase. As between the St.
Clairs and the Kolariks, that sale and purchase is an unsecured transaction. There
is no factual dispute that the St. Clairs hold legal title to the mobile home. The mobile
home, however, is subject to the purported lien of GreenPoint (or Bank of America)
granted by the St. Clairs. The trustee is seeking to avoid the alleged unperfected lien
of GreenPoint (or Bank of America), the lien that secured the St. Clairs’ original
purchase of the mobile home from the dealer.

Conclusion

Because material facts remain in dispute regarding the existence of a lien on
the mobile home and its perfection as of the date of the Kolariks’ bankruptcy filing,
the St. Clairs’ motion must be DENIED.

# # #

Case 13-05196 Doc# 77 Filed 07/07/14 Page 7 of 7



13-05204 Nielsen et al v. Pollan (Doc. # 35)

Nielsen et al v. Pollan, 13-05204 (Bankr. D. Kan. Jun. 17, 2014) Doc. # 35

PDFClick here for the pdf document.


 


 

ORDER DESIGNATED FOR ONLINE PUBLICATION ONLY

 

IN THE UNITED STATES BANKRUPTCY COURT

 FOR THE DISTRICT OF KANSAS

IN RE: )

)

MARY DONNA POLLAN, ) Case No. 13-12513

) Chapter 13

Debtor. )

__________________________________________)

)

SHERI NIELSEN )

JACKIE NIELSEN, )

)

Plaintiffs, )

vs. ) Adv. No. 13-5204

)

MARY DONNA POLLAN, )

)

Defendant. )

__________________________________________)

 

ORDER GRANTING IN PART AND DENYING IN PART

DEFENDANT’S RULE 12(b)(6) MOTION TO DISMISS


 Mary Pollan offered to help Sheri Nielsen acquire a more reliable car by
purchasing a Kia Soul in her name and signing the purchase money loan as the sole
borrower so that Sheri could take advantage of the lower interest rate offered by the
dealer. Both the car and the loan would be in Mary’s name, but Sheri would make the
payments and once the loan was repaid and the lien released, Mary would transfer
the vehicle’s title to Sheri. As long as Sheri made the payments, she would enjoy the
exclusive use of the vehicle.1 But, according to Sheri, after Mary convinced Sheri’s
mother, Jackie, to refinance the car loan at the bank Jackie used, Mary refused to
transfer the certificate of title to Sheri so the new bank could perfect its lien. Instead,
Mary got a duplicate key, took the car, sold it, and kept the money.

1 All of these agreements were oral.

 Sheri’s and Jackie’s complaint states an exception to discharge claim based on
common law fraud under 11 U.S.C. § 523(a)(2)(A). They successfully pled that Mary
schemed to get Sheri and Jackie to pay for a car that she intended to keep. Jackie
successfully pled a companion fraud claim that Mary tricked her into paying off
Mary’s purchase money loan. But, while Mary’s refusal to assign the certificate of
title to Sheri is a part of her alleged scheme, that refusal is not sufficient by itself to
support a fraud exception to her discharge that is based solely on KAN. STAT. ANN. §
8-135(c)(7) (2013 Supp.). To that extent, Sheri and Jackie’s complaint fails to state a


claim under Fed. R. Bankr. P. 7012 and Fed. R. Civ. P. 12(b)(6). The balance of Mary’s
motion is denied.2
Jurisdiction
An action to determine the dischargeability of a debt is a core proceeding over
which the bankruptcy court has subject matter jurisdiction and may enter a final
order and judgment.3
Rule 12(b)(6) Standards—Failure to State a Claim
For the Nielsens’ complaint to survive Mary Pollan’s motion to dismiss, the
facts they pled must be sufficient to state a claim for relief excepting from Pollan’s
discharge a debt incurred by fraud under § 523(a)(2)(A) and § 1328(a)(2). I review the
sufficiency of the complaint to do that, not whether plaintiffs will ultimately prevail
on the claims they alleged.4 Plaintiffs must have alleged enough facts to support a
claim that is plausible on its face.5 The plausibility standard is less than a probability
but more than a sheer possibility that plaintiffs are entitled to the relief requested.6
2 The Nielsens appear by their attorney Barry Arbuckle. Mary Pollan appears by her
attorney Carl B. Davis.
3 28 U.S.C. § 157(b)(1) and (b)(2)(I) and § 1334.
4 Robbins v. Oklahoma, 519 F.3d 1242, 1247 (10th Cir. 2008) (In ruling on a motion to
dismiss the judge must accept all allegations as true and may not dismiss on the basis that
it appears unlikely the allegations can be proven.).
5 Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007) (enough facts must be alleged to
nudge the claim across the line from conceivable to plausible).
6 Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
3
Case 13-05204 Doc# 35 Filed 06/16/14 Page 3 of 14

For purposes of this motion, we take the facts pled in the complaint as true.7
Facts
In their complaint, Sheri and Jackie Nielsen allege that in the spring of 2011,
Mary Pollan agreed to help Sheri acquire a more reliable used car.8 They visited a
dealer and were told that, as a lone buyer and borrower, Mary could qualify for a
lower interest rate than Mary and Sheri would be charged if they purchased and
financed the car together. Mary and Sheri agreed to Mary’s “straw purchase” of the
car. Sheri selected a 2010 Kia. Mary advanced the $2,000 down payment and signed
the secured car loan in her name only.9 The car dealer assigned the loan to T.D. Auto
Finance. According to the complaint, Mary and Sheri agreed that Sheri would have
exclusive use of the car so long as she made payments to Mary to repay the down
payment as well as making the monthly car loan payments to T.D. Auto. When both
obligations were paid in full, Mary would assign the certificate of title to Sheri.
Sheri took delivery of the Soul in July of 2011 and began making monthly loan
7 Ridge at Red Hawk, L.L.C. v. Schneider, 493 F.3d 1174, 1177 (10th Cir. 2007) (In
reviewing the sufficiency of the complaint, the court assumes the truth of the plaintiff’s
well-pleaded factual allegations and views them in the light most favorable to the
plaintiff.); Mobley v. McCormick, 40 F.3d 337, 340 (10th Cir. 1994) (A Rule 12(b)(6) motion
tests the sufficiency of the allegations within the four corners of the complaint after
accepting as true all well-pleaded factual allegations.).
8 The nature of the relationship between Sheri Nielsen and Mary Pollan is not described in
the complaint.
9 None of the car sale, title, or loan documents specifying the details of the transaction are
attached to the complaint.
4
Case 13-05204 Doc# 35 Filed 06/16/14 Page 4 of 14

payments to Mary and T.D. Auto. Sometime in 2012, Sheri repaid the $2,000 down
payment. In early 2012, Sheri became delinquent on the loan payments to T.D. Auto
and voluntarily surrendered the car to Mary for one day, apparently to prevent its
being repossessed. Mary returned the car after Sheri cured the arrearage. After
this, Mary began to urge Sheri to refinance the car loan in her own name immediately
rather than continue with the monthly payments for the remainder of the four year
term. Sheri could not assume the T.D. Auto loan.

In the spring of 2012, Mary approached Sheri’s mother, Jackie Nielsen, and
asked to help refinance the loan in Sheri’s name so that Mary’s liability could be
eliminated. Jackie had other banking business at Citizens Bank of Kansas. She
applied there and, in April, Citizens approved a loan of $18.000 to Sheri and Jackie.
That loan closed on April 30 and the Bank sent the $17,709 payoff amount to T.D.
Auto. Sheri and/or Jackie began making loan payments to Citizens. On May 29, the
Bank received the lien release from T.D. Auto. Then, the Kansas Department of
Revenue issued a clean Kansas title in Mary’s name. She received it on June 5.
Despite repeated requests, Mary refused to assign the title to the Nielsens or to
deliver it to the Bank. She claimed that, while Sheri had repaid the down payment
loan, she still owed Mary an unrelated debt. One day in September of 2012, Mary
dropped the unassigned title off at the Bank and left. When the Bank called her,
asking that she return and sign the title over to the Nielsens, she returned to the


Bank but refused to sign the title. She took it and left, walking out of the Bank
president’s office with it. On or about September 28, 2012, the Bank made demand
on Mary for assignment of the title or repayment of the $17,709 pay-off that the Bank
had funded.

Mary then had the car dealership make a duplicate key to the Kia and on
October 2, 2012, took it from Sheri’s workplace. She sold Sheri’s Soul to Carmax that
very day for $8,000 and kept the proceeds for her use. In state court litigation that
followed, Mary admitted in discovery that she “never actually intended” for Sheri to
be the car’s owner, even if Sheri made all of the car payments. Sheri and Jackie
stopped paying the bank loan in October of 2012 and Citizens sued. Sheri and Jackie
sued Mary in state court. Mary filed this chapter 13 case on September 27, 2013 and
obtained confirmation of her chapter 13 plan on January 10, 2014.

Analysis

While plaintiffs’ complaint does not identify these claims as arising under §
523(a)(2)(A), the fraud exception to discharge, it does request a determination that
Mary’s debt was incurred by common law and statutory fraud and is therefore
excepted from any chapter 13 discharge that Mary might receive under § 1328(a)(2).

Section 1328(a)(2) incorporates the § 523(a)(2) discharge exception by reference. A

 


fair reading of the complaint suggests that plaintiffs seek to invoke § 523(a)(2)(A).10

10 The only other discharge exception incorporated by § 1328(a)(2) that could be in play is §
523(a)(4) – fraud while acting in a fiduciary capacity. I conclude that plaintiffs’ claims are
not asserted under § 523(a)(4) because there is no allegation that Pollan was acting in a
fiduciary capacity in her dealings with the plaintiffs nor any allegations that can be
construed as creating a technical trust.

11 § 523(a)(2)(A) (Emphasis added).

12 Diamond v. Vickery (In re Vickery), 488 B.R. 680, 691 (10th Cir. BAP 2013) (agreeing with
cases decided by the Seventh Circuit Court of Appeals and the Sixth Circuit Bankruptcy
Appellate Panel).

13 Id. at 687; McClellan v. Cantrell, 217 F.3d 890, 893 (7th Cir. 2000) (by distinguishing
between a false representation and actual fraud, § 523(a)(2)(A) makes clear that actual
fraud is broader than misrepresentation).

14 Diamond v. Vickery, 488 B.R. at 690; McClellan v. Cantrell, 217 F.3d at 894.

15 Bank of Cordell v. Sturgeon (In re Sturgeon), 496 B.R. 215, 222 (10th Cir. BAP 2013).

This subsection excepts from a debtor’s discharge any debt “for money or
property obtained” by “false pretenses, a false representation, or actual fraud.”11
Some courts, including this Circuit’s bankruptcy appellate panel, have held that a
false representation is not a necessary element of actual fraud under § 523(a)(2)(A)
and that actual fraud supplies a separate basis for excepting a debt from discharge
that is independent from false pretenses or false representation.12 These courts say
that Congress’s use of the disjunctive “or” in the statute forces the conclusion that the
three categories of conduct named in (a)(2)(A) are distinct.13 Intent to deceive
distinguishes actual fraud from constructive or implied fraud14 and the tortfeasor’s
intent can be inferred from the factual circumstances.15 A debtor commits actual
fraud when she “intentionally engages in a scheme to deprive or cheat another of


property or a legal right.” 16 The plaintiffs assert that Mary made affirmative
misrepresentations to them upon which they relied to induce them to participate in
the transaction.17 Their complaint can also be read to allege that Mary engaged in
conduct that fostered a false impression, implicating the presence of false pretenses.18
Even though the plaintiffs style their claims as fraud, because they allege an
exception to discharge that is based on §1328(a)(2), and by reference, § 523(a)(2), we
consider whether the complaint states a claim for relief based on any of the three
prongs of § 523(a)(2)(A).
Plaintiffs have pled common law fraud with sufficient
particularity and have stated a claim under § 523(a)(2)(A).
Mary seeks dismissal of Sheri and Jackie’s common law fraud claim because
they have not pled the factual circumstances of the alleged fraud with sufficient
particularity under Fed. R. Civ. P. 9(b) and that this deficiency warrants dismissal of
the claim. She bases this position on the plaintiffs’ alleged failure to plead a particular
misrepresentation by her. But, as noted above, because actual fraud is a basis for
nondischargeability that is distinct from misrepresentation, and because
16 Diamond v. Vickery, 488 B.R. at 690, quoting Mellon Bank, N.A. v. Vitanovich (In re
Vitanovich), 259 B.R. 873, 877 (6th Cir. BAP 2001). See also McClellan v. Cantrell, 217 F.3d
at 893 (quoting Collier on Bankruptcy, actual fraud means any deceit, artifice, trick, or
design involving direct and active operation of the mind, used to circumvent and cheat
another.).
17 See Adv. Dkt. 1, ¶s 4 and 17.
18 See In re Sturgeon, 496 B.R. at 223 (distinguishing a false representation claim and a
false pretense claim under the discharge exception).
8
Case 13-05204 Doc# 35 Filed 06/16/14 Page 8 of 14

demonstrating actual fraud in this context does not require either a showing of
misrepresentation or reliance, the alleged lack of a misrepresentation, even if correct,
does not settle the issue. Instead, the test is whether the plaintiffs allege a scheme,
deceit, artifice, trick, or design intended to cheat another and whether the facts as
alleged are sufficient to state a claim that is plausible on its face. In their complaint,
Sheri and Jackie set out a detailed factual statement that, taken as true, plainly
supports a plausible claim that Mary schemed to get a car at plaintiffs’ expense and
that she carried out that scheme. The complaint contains the “who, what, when,
where, and how” of the alleged fraudulent scheme and specifically alleges Mary’s
fraudulent intent at paragraph 5:

In 2013, in written responses to legal counsel for the plaintiff Sheri
Nielsen, the debtor admitted [that she] never actually intended for
Sheri Nielsen to be the auto’s owner . . . but that debtor would always
be, and remain the vehicle’s owner, even after the vehicle was fully
paid for.19

19 Adv. Dkt. 1. Emphasis added. Fraudulent intent may be shown if debtor enters into a
contract or makes a promise without intending to comply or perform. See In re Schmidt, 70
B.R. 634, 640 (Bankr. N.D. Ind. 1986).

20 The plaintiffs refer to a lawsuit brought by Citizens Bank against them to collect the
loan balance. Adv. Dkt. 1, Complaint, ¶ 28. It is unclear if Pollan is a party to that lawsuit
or whether plaintiffs have brought separate suit against Pollan in state court as result of
this vehicle transaction. The status of the state court suit(s) is not apparent from the record
before this Court.

The written responses referred to by plaintiffs were supplied in response to discovery
in a state court lawsuit.20 This allegation, taken with the further allegations that


after the car had been paid for, Mary not only refused to assign the certificate of title
to Sheri or Jackie, but instead obtained a duplicate key to the vehicle and
“surreptitiously removed the auto from Sheri Nielsen’s employment,” sold it, and kept
the proceeds, could allow a court to infer that she intended to defraud the Nielsens.
Indeed, the disposal of the vehicle followed shortly after the Bank made demand on
Mary for the assigned certificate of title or repayment of the take out loan.

Jackie also sufficiently alleges actual fraud against Mary. Mary approached
Jackie to enlist her aid in getting the take-out loan from Citizens, Jackie’s bank, to
pay off Mary’s loan with T.D. Auto. Mary never revealed that she intended to retain
the car.21 Why would Sheri and Jackie have agreed to this cleverly contrived
transaction or have borrowed in order to pay for the car if they knew that Mary
intended to keep it? Their allegations are detailed, specific, and particular. They state
a plausible claim for actual fraud. Therefore, Pollan’s motion to dismiss the common
law fraud claim should be DENIED.

21 Complaint, ¶s 12-14, 16-18. In paragraph 17, plaintiffs also allege a misrepresentation
by Pollan: “In reliance on debtor’s representation she wanted to be rid of that loan’s liability
[T.D. Auto Finance] and auto, the plaintiffs’ loan [sic] actually closed the Citizens’ loan on
April 30, 2012 . . .”

In addition to actual fraud, the plaintiffs also state a claim for
misrepresentation and false pretenses under the other prongs of § 523(a)(2)(A). As
alleged in the complaint, Sheri relied on Mary’s representation that she [Sheri] would


have exclusive use and ownership of the vehicle by repaying the down payment to
Mary and making the monthly loan payments to T.D. Auto.22 Later, in 2012, the
Nielsens allege their reliance on Mary’s representation that she wanted to rid herself
of liability on the original car loan and the auto, in procuring the take out loan from
Citizens Bank and paying off T.D. Auto.23 Mary’s alleged intent to defraud or deceive
could be inferred from her statement that she never intended to part with ownership
of the vehicle.
Finally, the plaintiffs’ allegations also state a claim for false pretenses under §
523(a)(2)(A). False pretenses differ from false representations in that the former are
implied misrepresentations, conduct, or omissions intended to create and foster a
false impression.24 Here, if not explicitly misrepresented, Mary’s alleged conduct and
statements created the false impression that Sheri would become the title owner of
the Kia upon repayment of Mary’s car loan. Mary never disclosed her secret intent to
retain ownership of the vehicle at any point in the transaction or their dealings,
including when she solicited the Nielsens to pay off her loan early. The Nielsens
clearly were led to believe the car would be theirs. The plaintiffs’ complaint supports
a claim for false pretenses and misrepresentation under § 523(a)(2)(A). Pollan’s
22 Complaint, ¶4.
23 Complaint, ¶ 17.
24 Bank of Cordell v. Sturgeon (In re Sturgeon), 496 B.R. 215, 223 (10th Cir. BAP 2013).
11
Case 13-05204 Doc# 35 Filed 06/16/14 Page 11 of 14

motion to dismiss for failure to state a claim should be DENIED on this additional
basis.

Violation of KAN. STAT. ANN. § 8-135(c)(7) does not constitute
actual fraud.

 Sheri and Jackie’s complaint appears to allege a claim that Mary’s failure to
transfer and assign a certificate of title to the Kia is a separate act of fraud that
would support an exception from discharge under §523(a)(2)(A). They base that part
of their claim on KAN. STAT. ANN. § 8-135(c)(7), a provision in the Kansas vehicle
code that provides:

It shall be unlawful for any person to buy or sell in this state any
vehicle required to be registered, unless, at the time of delivery thereof
or at a time agreed upon by the parties, not to exceed 60 days . . . after
the time of delivery, there shall pass between the parties a certificate
of title with an assignment thereof. The sale of a vehicle required to
be registered under the laws of this state, without assignment of the
certificate of title, is fraudulent and void, unless the parties shall
agree that the certificate of title with assignment thereof shall pass
between them at a time other than the time of delivery, but within 60
days thereof.25

25 KAN. STAT. ANN. § 8-135(c)(7) (2013 Supp.), emphasis added.

26 Without the certificate of title, the lender was prevented from perfecting a security
interest in the vehicle by noting its lien on the certificate of title and could not secure its
loan to Sheri and her mother. Because she never received a properly assigned title, Sheri

The plaintiffs contend that Mary’s failure to assign the title to Sheri after her lender
financed the payoff of Pollan’s loan in late April-early May of 2012 is, by itself, a
sufficient basis to find that Mary committed actual fraud.26 This resulted in Mary


did not become the owner of the vehicle even though she paid for it.

27 Constructive fraud is a breach of a legal duty which, irrespective of moral guilt, the law
declares fraudulent; neither actual dishonesty of purpose or intent to deceive is necessary.
Actual fraud, on the other hand, is an intentional fraud and the intent to deceive is an
essential element thereof. Andres v. Claassen, 238 Kan. 732, 741-42, 714 P.2d 963 (1986).

28 Actual fraud requires proof that (1) a fraud occurred, (2) debtor intended to defraud, and
(3) the fraud gave rise to the debt that is the subject of the discharge dispute. In re
Philopulos, 313 B.R. 271 (Bankr. N.D. Ill. 2004).

29 See In re Hanson, 432 B.R. 758, 772 (Bankr. N.D. Ill. 2010) (Fraud exception under §
523(a)(2)(A) does not reach constructive frauds); In re Alvarez, 13 B.R. 571, 574 (Bankr.
S.D. Fla. 1981) (commission of statutory fraud [sale of unregistered securities by an
unregistered dealer] does not, of itself, constitute actual fraud for purposes of
nondischargeability under § 523(a)(2)(A)); In re Parker, 264 B.R. 685, 699 (10th Cir. BAP
2001), aff’d 313 F.3d 1267 (10th Cir. 2002) (the fraud discharge exception of § 523(a)(2)(A)
means actual or positive fraud, rather than fraud implied by law; it includes those frauds
involving moral turpitude or intentional wrong.); In re Johnson, 477 B.R. 156, 169 (10th Cir.

remaining the owner of record when she took the Kia back from Sheri five months
later and sold it. Even assuming that the statute applies to the transaction between
Mary and the Nielsens, that alone is not enough to support a plausible claim for relief
under the actual fraud prong of § 523(a)(2)(A).

 The Kansas statute voids a sale as “fraudulent” when the title isn’t assigned,
but nothing in it requires a showing that the seller actually intended to defraud the
buyer. If there is any common law fraud involved, it is likely to be constructive fraud
at worst, fraud that requires neither intent nor moral guilt, but can instead be shown
to have occurred as a result of the tortfeasor’s legal duty.27 A violation of § 8-135(c)(7)
is a constructive or implied fraud, but, standing alone, it is not actual fraud28 and
does not support excepting a debt from discharge under the actual fraud prong of
§523(a)(2)(A).29 While Mary’s alleged refusal to assign and transfer the certificate of


BAP 2012) (Fraud implied in law that may arise in the absence of bad faith or immorality is
insufficient for § 523(a)(2)(A).).

title may be more factual support for the Nielsens’ common law fraud claim, it does
not stand alone as a claim upon which relief may be granted here. To that extent,
Pollan’s motion to dismiss the “statutory fraud” claim based solely on KAN. STAT. ANN.
§ 8-135(c)(7) should be GRANTED.

 With the denial of Mary’s motion to dismiss the common law fraud exception
to discharge pled by these plaintiffs, she is granted 14 days from the date of the entry
of this Order to serve and file her answer to the plaintiffs’ complaint. A scheduling
conference in this proceeding will be scheduled shortly thereafter.

 # # #



13-05196 Morris v. GreenPoint Credit LLC et al (Doc. # 75)

Morris v. GreenPoint Credit LLC et al, 13-05196 (Bankr. D. Kan. Jul. 2, 2014) Doc. # 75

PDFClick here for the pdf document.


 

SO ORDERED.
SIGNED this 2nd day of July, 2014.

 

DESIGNATED FOR ONLINE PUBLICATION ONLY

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS


IN RE:

)
MARK ROBERT KOLARIK, ) Case No. 13-11985
KELLY LYNN KOLARIK, ) Chapter 7

)
Debtors. )
__________________________________________)
)


J. MICHAEL MORRIS, Trustee,
)
)
Plaintiff, )
vs. ) Adv. No. 13-5196
)
GREENPOINT CREDIT, LLC; )
GREEN TREE SERVICING, LLC; )
ROBERT E. ST. CLAIR and )

R. ANNE ST. CLAIR; )
MARK R. KOLARIK and )
KELLY L. KOLARIK, and )
BANK OF AMERICA, N.A., )
)
Defendants. )
__________________________________________)


1

Case 13-05196 Doc# 75 Filed 07/02/14 Page 1 of 10


ORDER DENYING GREEN TREE SERVICING, LLC’s
MOTION TO DISMISS (Dkt. 19)


Green Tree Servicing moves for dismissal of the chapter 7 trustee’s complaint
under 11 U.S.C. § 544(a) to avoid and preserve an alleged unperfected lien of
GreenPoint Credit, L.L.C. in a manufactured home that defendant sellers St. Clair
sold to the debtors Kolarik in 2004 under an installment contract.1 Green Tree’s
motion is brought under Fed. R. Civ. P. 12(b)(6), or alternatively, Fed. R. Civ. P. 12(c)
as incorporated by Fed. R. Bankr. P. 7012(b).2

The Complaint

The trustee alleges that the Kolariks entered into a prepetition contract of
purchase and sale with the St. Clairs in July 2004 for the purchase of a 1997 Skyline
mobile home. The trustee further alleges that the mobile home is believed to be
subject to a lien in favor of GreenPoint Credit, LLC that the St. Clairs gave to secure
their purchase money loan from GreenPoint. Because that lien was not perfected on
the date of the Kolariks’ bankruptcy filing, July 31, 2013, he seeks to avoid it,
exercising his strong-arm powers as a hypothetical lien creditor under § 544(a).

The Applicable Legal Standard

1 Green Tree Servicing LLC appears by its attorney John F. Michaels. The chapter 7
trustee J. Michael Morris personally appears.
2 When a party files a Rule 12(b)(6) motion to dismiss for failure to state a claim after
having filed an answer to the complaint, as Green Tree has done in this case, the motion is
treated as a motion for judgment on the pleadings under Rule 12(c). Jacobsen v. Deseret
Book Co., 287 F.3d 936, 941 n. 2 (10th Cir. 2002). The same legal standard applies to Rule
12(b)(6) and Rule 12(c) motions. Atl. Richfield Co. v. Farm Credit Bank of Wichita, 226 F.3d
1138, 1170 (10th Cir. 2000).

Case 13-05196 Doc# 75 Filed 07/02/14 Page 2 of 10


Motions to dismiss or for judgment on the pleadings under Rule 12 are
ordinarily subject to the facial plausibility standard enunciated in the Supreme
Court’s Twombly and Iqbal decisions and are confined to the allegations contained in
the complaint.3 But where the litigants have presented exhibits and materials
outside the complaint in their motion papers, the Court may treat the motion as one
for summary judgment.4 Here the parties each attached a Kansas Department of
Revenue (KDR) motor vehicle title search on the subject mobile home to their papers.5
The trustee added a copy of the Contract of Purchase and Sale (the “Contract”)
between the St. Clairs and Kolariks.6 I therefore treat Green Tree’s motion as one for
summary judgment, requiring that I determine whether material facts remain in
dispute and whether the undisputed facts entitle Green Tree to judgment as a matter
of law on the trustee’s complaint. Neither party challenges the authenticity of the
documents attached to the motion papers.

Facts

Sometime before 2004, the St. Clairs purchased a manufactured home with
purchase money borrowed from GreenPoint and granted GreenPoint a security
interest in the home. In 2004, the Kolariks purchased the home from the St. Clairs
for $23,884 under the Contract.7 The Contract provides that the debtors were to pay

3 Fisher v. Lynch, 531 F. Supp. 2d 1253, 1260 (D. Kan. 2008); Wagner Equip. Co. v. Wood,
893 F. Supp. 2d 1157, 1159-60 (D. N.M. 2012).
4 Fed. R. Civ. P. 12(d).
5 Adv. Dkt. 35, p. 7 and 38, p. 13.
6 Adv. Dkt. 38, pp. 9-12


7 Id.

Case 13-05196 Doc# 75 Filed 07/02/14 Page 3 of 10


the St. Clairs’ monthly loan payments (including insurance) to GreenPoint and
annually try to assume the GreenPoint loan.8 The GreenPoint loan would remain in
the St. Clairs’ name. If the home were destroyed or damaged, the St. Clairs could
elect to repair it or cancel the contract. If the debtors paid off or assumed the
GreenPoint loan, the St. Clairs were obligated to pass title to them. All other duties
were delegated to the buyers – pay the taxes and insurance and maintain the mobile
home in good and clean condition. The debtors reside in the mobile home that is
situated in a mobile home community on a rented lot. The Kolariks filed their chapter
7 bankruptcy petition on July 31, 2013. They claim the mobile home exempt as their
homestead.

Both the trustee and Green Tree rely on a second document, a motor vehicle
search report from the KDR on the mobile home.9 This document shows that title
number N0056133 to the mobile home was issued March 11, 2004 and the St. Clairs
are the title owners of record.10 No lien holder is shown on this report; instead, it
states “Not Found.” While this report suggests that either no lien exists on the mobile
home or that a lien may exist but be unperfected, the certificate of title is not in the
summary judgment record and the Court cannot tell whether GreenPoint’s lien is
noted on it as Kansas law requires.11

8 Adv. Dkt. 38, pp. 9-12.
9 Adv. Dkt. 35, Ex. A, p. 7 and Adv. Dkt. 38, p. 13.
10 Id. Although not entirely clear, it appears that this motor vehicle search report was
generated or printed on September 3, 2013 from the KDR division of motor vehicles
website.
11 KAN. STAT. ANN. § 84-9-311(a)(2), (b) (2013 Supp.) and § 58-4204(g) (2013 Supp.).


Case 13-05196 Doc# 75 Filed 07/02/14 Page 4 of 10


Green Tree Servicing, LLC, the St. Clairs, and the trustee stipulate that Green
Tree is the loan servicer for Bank of America, N.A. (BOA) which is the successor in
interest to “BankAmerica Housing Services, a Division of Bank of America, FSB” and
is the real party in interest.12 Nothing in the stipulation or record establishes the
relationship between BOA and GreenPoint Credit, or whether BOA is the successor
to GreenPoint with respect to the mobile home loan and lien.13 The trustee amended
his complaint on June 23, 2014 to add BOA as a party defendant but the substantive
allegations of the original complaint remained unchanged.14 GreenPoint Credit has
not answered or otherwise responded to the trustee’s complaint, and the trustee has
not pursued GreenPoint’s default.15 As discussed below, Green Tree’s motion should
be denied.

Analysis

Green Tree makes several arguments why the trustee’s claim must fail as a
matter of law. First, Green Tree argues that because there was no “transfer” of
property by the debtors (the lien being granted by the St. Clairs), there is nothing for
the trustee to avoid.16 But, as the trustee correctly points out, the language of § 544(a)
does not limit its reach to transfers by the debtor; rather, it grants the trustee the

12 Adv. Dkt. 59.
13 GreenPoint Credit may have been acquired or absorbed by BOA at some point during the
financial crisis of 2008, but the Court’s knowledge of this is off-record and cannot be relied
on in deciding these motions.
14 Adv. Dkt. 67.
15 It appears to the Court that GreenPoint Credit, LLC has not been properly served with
summons and the complaint. See Fed. R. Bankr. P. 7004(b)(3).
16 See Adv. Dkt. 19.


Case 13-05196 Doc# 75 Filed 07/02/14 Page 5 of 10


same “rights and powers” that a hypothetical judgment lien creditor, executing
creditor, or bona fide purchaser would have as of the date of the debtors’ petition.17
Because § 544(a) is not limited in the way Green Tree claims, a trustee may avoid
any unperfected lien that encumbers property of the estate without regard to whether
the debtors granted it.18 Green Tree’s argument to the contrary must fail.

Second, Green Tree argues that the mobile home is not property of the estate.19
To reach this conclusion, Green Tree reasons that the Contract is an executory
contract and that, because the Contract was neither assumed or rejected, it must be
deemed rejected under § 365(d)(1). Once an executory contract is rejected, it is no
longer property of the estate per § 365(p)(1).20 Green Tree bases this argument on
the fact that the debtors scheduled the Contract in Schedule G – Executory Contracts
and Unexpired Leases and described the Contract as a “residential lease/rent to own.”
The Contract says nothing about being a “residential lease/rent to own” agreement.
It is not executory.

In this Circuit, the courts apply the Countryman test in determining whether

17 In re Silver, 303 B.R. 849, 863 (10th Cir. BAP 2004) (emphasizing the use of the
disjunctive language “or” in § 544(a)). See also, Morris v. Hicks, et al (In re Hicks), 491 F.3rd
1136, 1140 (10th Cir. 2007) (the rights of a bankruptcy trustee as a hypothetical lien
creditor are determined under state law); KAN. STAT. ANN. § 84-9-317(a)(2) (2013 Supp.)
(subordinating an unperfected security interest to the rights of a trustee who became a lien
creditor as of the date of the petition).
18 In re Sheets, 277 B.R. 298, 307 (Bankr. N.D. Tex. 2002) (transfer is not a prerequisite to
trustee exercising his strong-arm powers under § 544(a)).
19 Adv. Dkt. 35.
20 Section 365(p)(1) speaks to rejected leases of personal property and does not address
rejected executory contracts.

Case 13-05196 Doc# 75 Filed 07/02/14 Page 6 of 10


a contract is an executory contract.21 Under that test, if: (1) the contract has not been
fully completed or performed; (2) future obligations and performance remain due from
both parties to the contract; and (3) failure to perform those obligations would
constitute a material breach, the contract is executory.22 Most courts conclude that
installment land contracts or motor retail vehicle retail sales contracts (including
those for mobile homes) are not executory if the only duty the seller retains is the
duty to convey title when the buyer’s payments are complete and the buyer is
obligated from the beginning of the contract to pay taxes, insurance, and
maintenance.23

This Contract is not a lease nor is it a rent-to-own agreement. Rather, it
documents the sale and purchase of the mobile home “as is” without any
representations as to condition by the St. Clairs. The debtors were not only obligated
to make the monthly loan payments to GreenPoint, they were also obligated to pay
taxes on the mobile home, to insure it, and to maintain it. Apart from conveying title
to the debtors upon completion of monthly payments, the St. Clairs had no other
duties or obligations beyond retaining the right to elect to repair the home in the

21 The test is named for Professor Vern Countryman. See Olah v. Baird (In re Baird), 567
F.3d 1207, 1211 (10th Cir. 2009)(adopting Countryman test of an executory contract).


22 Id.
23 Johnson v. Smith (In re Johnson), 501 F.3d 1163, 1174 (10th Cir. 2007) (Debtors’
obligation to tender installment payments and the seller-dealer’s obligation to release the
lien when handing over the vehicle title are insufficient to classify the sales contract as
executory.). See also In re Drahn, 405 B.R. 470, 475 (Bankr. D. Ia. 2009) (contract for sale of
mobile home is not executory when the only remaining duty is the transfer of title after
debtor has completed payments); In re Martinez, 476 B.R. 627, 632 n.2 (Bankr. D. N.M.
2012).


Case 13-05196 Doc# 75 Filed 07/02/14 Page 7 of 10


event of a total loss or cancel the Contract. That right will not ripen until a casualty
loss is sustained on the mobile home. The Contract is not executory, and therefore
not subject to assumption or rejection under § 365(d)(1). To the extent it is not exempt,
the debtors’ equitable interest in the mobile home is property of the estate.24

The Contract here differs from the contract at issue in In re Reasor in which
this Court concluded the contract was an executory one.25 In that case the sellers
retained legal title to the trailer but also remained obligated to maintain insurance
coverage on the travel trailer that was being purchased by the debtors under an
unsecured installment purchase agreement. It contained no provisions allocating
responsibility for taxes, repairs and maintenance to either party. The sellers
continuously insured the trailer during the 56-month term of the purchase
agreement, even while the debtors were in default. In contrast here, all of the usual
attributes of ownership were allocated to the Kolariks – responsibility for taxes,
insurance, and maintenance of the mobile home; the ability to deduct any interest
paid to GreenPoint; and possession. Upon the completion of the monthly payments or
the successful assumption of the St. Clairs’ GreenPoint loan, the St. Clairs were
obligated to transfer title to the Kolariks. Reasor is distinguishable on its facts and
the terms of the contract. This Contract is not executory.

24 On this record the court is unable to determine the extent of the debtors’ equitable
interest in the mobile home and such determination remains for trial, as does a
determination of the rights of the St. Clairs, GreenPoint, BOA, and Green Tree in the
mobile home based upon a fully developed factual record.
25 In re Reasor, 2014 WL 1647142 (Bankr. D. Kan. Apr. 23, 2014).

Case 13-05196 Doc# 75 Filed 07/02/14 Page 8 of 10


Next, Green Tree asserts that substantial compliance with Kansas certificate
of title statutes suffices to perfect the lien in the mobile home and therefore,
GreenPoint’s (or BOA) lien is deemed perfected, defeating the trustee’s avoidance
action.26 Green Tree cites the Charles case for authority suggesting that the KDR’s
motor vehicle search report that shows the St. Clairs as the owner of the mobile home
is analogous to the certificate of title that the lender was relied on in Charles.27 But
the facts here are distinguishable and do not warrant an extension of the substantial
compliance standard applied in Charles. In that case, the creditor was identified on
certificates of title to trucks as the owner thereof, rather than the lienholder. The
Tenth Circuit held that this met the substantial compliance standard for perfection
because a search of the certificate of title records would give notice to potential
secured creditors that the creditor was claiming an interest in the trucks.28 Here, the
document presented by Green Tree is only a KDR title search report.29 It identifies
the title holders as the St. Clairs (the actual owners), not as lienholders. There is no
mention of either GreenPoint, BOA, or any other creditor in the search report. It
cannot impart notice to anyone that either creditor was claiming an interest in the
mobile home.30 Green Tree’s substantial compliance argument must fail on this

26 Adv. Dkt. 35.
27 Morris v. The CIT Group/Equip. Financing, Inc. (In re Charles), 323 F.3d 841 (10th Cir.
2003).
28 Id. at 845.
29 Adv. Dkt. 35, Ex. A.
30 Cf. Morris v. 21st Mortgage Corp. (In re Jewell), 2006 WL 3512926 at *3 (Bankr. D. Kan.
Dec. 4, 2006) (In distinguishing In re Charles, this Court noted: “One viewing a title that
recited someone other than the seller or borrower as an “owner” would absolutely be placed


Case 13-05196 Doc# 75 Filed 07/02/14 Page 9 of 10


record and at this stage of the proceedings.

Finally, Green Tree claims that because GreenPoint did not extend credit to

the debtors, its lien cannot be avoided under § 544(a)(1) and (2).31 As the trustee

correctly notes, Green Tree misapprehends § 544. When exercising “strong-arm

powers” under § 544(a), the trustee stands in the shoes of a hypothetical lien creditor;

he is clothed with the rights and powers of a judicial lien creditor whether or not such

a creditor actually exists.32 This argument is also without merit.

Conclusion

Based upon the pleadings and the limited record before the Court, Green Tree’s

converted motion to dismiss or for judgment on the pleadings, treated as one for

summary judgment, is DENIED for the reasons set forth above.33

# # #

on notice of the named party’s interest in the property.”).
31 Adv. Dkt. 35.
32 In re Silver, 303 B.R. 849, 863. See also, Zilkha Energy Co. v. Leighton, 920 F.2d 1520,
1523 (10th Cir. 1990) (Under § 544 the trustee may stand in the shoes of a hypothetical
judgment lien creditor of the debtor; it is a legal fiction that permits the trustee to assume
the guise of a creditor with a judgment against the debtor.); In re Brouillette, 389 B.R. 214,
218 (Bankr. D. Kan. 2008) (“Under § 544(a)(1), upon commencement of a bankruptcy case,
the trustee has the status of a creditor with a judicial lien on all property on which a
creditor could have obtained a judicial lien, whether or not such creditor actually exists,”
quoting 5 Collier on Bankruptcy ¶ 544.05.).
33 I note the lack of any evidence in the record that identifies which creditor (GreenPoint,
BOA, or Green Tree) held a lien in the mobile home on the date of the Kolariks’ bankruptcy
petition or whether that lien was properly perfected. Nor is there evidence sufficient to
establish the relationship, if any, among GreenPoint, BOA and Green Tree, or what the
Kolariks have paid under the Contract -- evidence that is essential for the Court to
determine the interests and rights of the parties in the mobile home.


Case 13-05196 Doc# 75 Filed 07/02/14 Page 10 of 10



14-05039 Speth v. Garcia (Doc. # 13)

Speth v. Garcia, 14-05039 (Bankr. D. Kan. Jun. 17, 2014) Doc. # 13

PDFClick here for the pdf document.


 

 


DESIGNATED FOR ONLINE PUBLICATION ONLY

 

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF KANSAS

 

IN RE: )

 )

PAUL A. GARCIA, ) Case No. 12-10393

 ) Chapter 7

Debtor. )

__________________________________________)

 )

STEVEN L. SPETH, Trustee )

 )

 Plaintiff, )

vs. ) Adv. No. 14-5039

 )

WILLIAM B. GARCIA Successor )

Trustee of the Revocable Inter Vivos )

Trustee of Lenore Garcia, u/a/d )

November 18, 2008 )

 )

 Defendant. )

__________________________________________)

 

ORDER ON DEFENDANT’S MOTION TO DISMISS, OR IN THE
ALTERNATIVE, FOR SUMMARY JUDGMENT

 

 Paul Garcia filed his chapter 13 petition on February 28, 2012 and his case was


converted to chapter 7 on February 3, 2014. Plaintiff Steven L. Speth was appointed
chapter 7 trustee. Speth filed an amended complaint pursuant to 11 U.S.C. § 547
alleging that Paul Garcia transferred $35,000 to defendant William B. Garcia,
successor trustee of the Lenore Garcia Inter Vivos Trust (the “Trust”) during the
“insider preference period” either with the intention of hindering, delaying, or
defrauding his creditors or in exchange for less than reasonably equivalent value. The
Trust moved to dismiss or, in the alternative, for summary judgment. For the reasons
set forth below, the motion is granted in part and denied in part.

 The Complaint

 Speth’s sparsely pleaded complaint merely asserts that Paul transferred
$35,000 to the Trust within one year before he filed his bankruptcy case and that he
did so either with fraudulent intent or in exchange for less than reasonably
equivalent value.1 The Trust’s motion seeks either a dismissal of the complaint for
failure to state a claim under Fed. R. Bankr. P. 7012 and Fed. R. Civ. P. 12(b)(6) or
for summary judgment under Fed. R. Bankr. P. 7056 and Fed. R. Civ. P. 56.

1 The chapter 7 trustee, Steven L. Speth, will be referred to as Speth even though he proceeds in his
trust capacity. Speth’s claim lies against William Garcia in his capacity as trustee of the Lenore
Garcia Trust. To avoid confusion between the two trustees, the defendant will be referred to as “the
Trust.” Attorney Timothy J. King appeared on behalf of Speth. Attorney Elizabeth Carson appeared
on behalf of the Trust.

 We first must ascertain what cause of action Speth is attempting to plead here.
In the original complaint, he alleged a claim to avoid and recover a fraudulent
transfer under § 548. The next day Speth filed his amended complaint. The amended
complaint differs from the original only in that it states a claim to avoid and preserve


a preference under § 547 instead of a fraudulent transfer under § 548.2 The factual
and legal allegations remained the same: the debtor transferred $35,000 during the
insider preference period to defendant, the transfer was made with intent to hinder,
delay or defraud creditors [actual fraud] or the transfer was for less than reasonably
equivalent value and was either made at a time that the debtor was insolvent or the
debtor became insolvent as a result of the transfer [constructive fraud].3
While the complaint’s words hint at a §548 fraudulent transfer, Speth’s
reference to § 547 in the amended complaint while referencing the insider preference
period suggests that he may instead be pursuing a preference claim. Speth does not
allege a date certain that the transfer occurred, but alleges it was made during the
insider preference period within one year before the filing of the bankruptcy petition,
again pointing to an allegation of preference.4 The Court’s doubts about Speth’s
intention to assert a preference claim are dispelled by his response brief which
addresses only that:
Plaintiff’s Complaint is based on a good faith belief the following
occurred. On July 22, 2011, debtor Paul J. Garcia and his brother,
Alex Garcia jointly paid $35,000.00 to the Lenore Garcia Inter Vivos
Trust. All beneficiaries of the trust are the debtor and his brothers.
Debtor filed for protection under Chapter 13 on February 28, 2012.
Thus, the transfer occurred within the one year reach back preference
period for an “insider” under 11 U.S.C. § 547. Plaintiff asserts the
trust is an “insider” because of the family relationships of the trust
2 Cf. Adv. Dkt. 1 and 2.
3 See § 548(a)(1)(A) (actual fraud) and (a)(1)(B)(i) and (ii)(I) (constructive fraud).
4 Section 548(a)(1) reaches transfers made during the 2-year period before the date of the petition,
while the insider preference period is up to 1 year before the date of the petition under § 547(b)(4)(B).
Thus, a transfer that falls within the insider preference period will also fall within the 2-year period
for fraudulent transfers.
3
Case 14-05039 Doc# 13 Filed 06/16/14 Page 3 of 12

beneficiaries and thus, the transfer is a preference.5
Since the parties both focus on the Trust’s insider status which is mostly
relevant to calculating the reach back period for the preference claim, the Court will
first address whether the amended complaint states a claim to avoid a preference
under § 547, before turning to the fraudulent transfer claims.
The Preference Claim, § 547
A preference is (1) a transfer of an interest of the debtor or the estate in
property; (2) to or for the benefit of a creditor; (3) made for or on account of an
antecedent debt owed by the debtor before the transfer was made; (4) made while the
debtor is insolvent; (5) made within 90 days preceding the filing of the bankruptcy
petition; and (6) that allows the creditor to receive more than the creditor would
otherwise have received in a chapter 7 liquidation.6 A transfer to an insider made
less than one year but more than 90 days before the petition date is also a preference.7
Unlike a fraudulent transfer, the debtor’s intent or state of mind in making the
transfer is immaterial to determining whether the transferee has received a
preference.8
All Speth pleads is that the debtor transferred “a payment amount of $35,000”
to the Trust during the “’insider’ preference period,” while debtor was insolvent and
5 Adv. Dkt. 10, p. 2. Emphasis added.
6 Bailey v. Big Sky Motors, Ltd. (In re Ogden), 314 F.3d 1190, 1196 (10th Cir. 2002).
7 Section 547(b)(4)(B); Rupp v. United Security Bank (In re Kunz), 489 F.3d 1072, 1076 (10th Cir.
2007) (debtor’s title of director emeritus of bank did not make bank a per se insider of debtor for
preference purposes); In re Hertzler Halstead Hospital, 334 B.R. 276, 286-87 (Bankr. D. Kan. 2005)
(one-year look-back period applies to preference analysis to an insider).
8 In re Antweil, 931 F. 2d 689 (10th Cir. 1991), aff’d 503 U.S. 393 (1992).
4
Case 14-05039 Doc# 13 Filed 06/16/14 Page 4 of 12

for the benefit of the Trust. He does not allege that the Trust is a creditor of the
debtor or that debtor owed an antecedent debt to the Trust before the transfer. Nor
does he affirmatively allege that the Trust is an insider; that allegation can be
inferred from the averment that the transfer occurred during the insider preference
period. Absent these critical allegations, the complaint by itself does not state a
preference claim.

But the Trust has included facts and exhibits outside the amended complaint
in its motion to dismiss, giving the Court liberty to address its motion as one for
summary judgment.9 Summary judgment is appropriate when the uncontroverted
facts show that there remain no genuine issues of material fact in the case and that
the movant is entitled to judgment as a matter of law. The Trust attached the
Revocable Inter Vivos Trust of Lenore Garcia as Exhibit A and a file-stamped copy of
a state court journal entry of judgment entered July 15, 2011 in a case brought by the
Trust against debtor as Exhibit B. While the Trust should have directly cited to the
applicable provisions of the trust document and the journal entry of judgment to
support each of its contentions of fact, Exhibits A and B generally support them.10
Speth does not dispute the authenticity of either the trust document or the state court
judgment. Nor does he dispute the accuracy of the Trust’s separately numbered facts
in his response brief, as he had the opportunity to do.11 He could have responded to
each of the Trust’s statements of fact by properly disputing them, or he could have

9 Fed. R. Civ. P. 12(d).

10 Adv. Dkt. 8, pp. 1-11. See Fed. R. Civ. P. 56(c)(1) and (3); D. Kan. L.B.R. 7056.1(a).

11 Adv. Dkt. 10.


submitted his own additional statements of uncontroverted fact.12 Because he didn’t,
the Trust’s statements of material fact are deemed admitted.13
Ironically, the facts necessary to the preference claim that Speth failed to plead
in his amended complaint are supplied by the Trust in its uncontroverted statement
of facts. In her trust, Lenore Garcia granted Paul and Alex an option to buy her Salina
restaurant for $200,000 payable in 10 annual installments of $20,000. The Trust
document, Exhibit A, supports that statement and sets forth the terms and manner
of exercising the purchase option. The Trust also contends that Paul and Alex only
made one partial payment after they exercised the option, that they missed the
second annual payment entirely, and that the trust obtained a judgment against
them for $35,000 in Sedgwick County District Court in July of 2011.14 Those facts are
supported by the Journal Entry, Exhibit B, where the state court found that Paul and
Alex breached the contract for the purchase of the restaurant and entered judgment
against them. Speth admits that the debtor transferred $35,000 to the Trust on July
22, 2011, well within the insider preference period.15 Exhibit B therefore establishes
that the Trust became a judgment creditor of debtor in July 2011 and that this
antecedent debt existed prior to debtor’s bankruptcy filing on February 28, 2012 and
the $35,000 transfer at issue. As the state court judge concluded in the Journal Entry,
the Trust’s judgment against debtor arose from a prepetition breach of contract for
12 D. Kan. L.B.R. 7056.1(b).
13 D. Kan. L.B.R. 7056.1(a).
14 The Court notes that the principal amount of the judgment is $30,000, not $35,000. See Ex. B
attached to Adv. Dkt. 8.
15 See Adv. Dkt. 10, p. 2
6
Case 14-05039 Doc# 13 Filed 06/16/14 Page 6 of 12

nonpayment of the purchase option granted to and exercised by debtor under the
Trust Document.16
The only dispute is whether the Trust is an insider. Because all of the other
elements of §547(b) appear to be met, the $35,000 transfer in July of 2011 – more
than 90 days but less than 1 year before debtor filed his bankruptcy petition –
qualifies as a preference only if the Trust qualifies as an insider.17 The Trust contends
that it is not an insider because it does not meet the definition of a statutory insider
under 11 U.S.C. § 101(31)(A). Even if it is correct, the Trust may qualify as a nonstatutory
insider.18 But that determination depends on the specific facts regarding
the debtor’s relationship with the Trust, a matter still in controversy at the summary
judgment stage.19 Accordingly, the Court concludes that the uncontroverted facts
presented here may establish an avoidable preference claim if the Trust is an insider,
but the disputed issue of insider status cannot be determined on this record.20 The
Trust’s motion for summary judgment as to the preference claim under § 547(b) is
therefore DENIED.
16 This Court also has familiarity with Lenore’s Trust and the purchase option as it conducted a daylong
trial challenging the dischargeability of Paul’s debt to the trust before granting Paul’s Rule
52(c) motion for judgment at the close of the trust’s evidence. This trial took place before Paul
converted his case to chapter 7. See William B. Garcia, as successor trustee of the Revocable Inter
Vivos Trust of Lenore Garcia, u/a/d November 18, 2008 v. Paul A. Garcia, et al., Adv. No. 12-5126,
Dkt. 114 (Bankr. D. Kan., Mar. 12, 2014).
17 See § 547(b)(4)(B).
18 See In re Kunz, 489 F.3d 1072, 1078-79 (describing the two categories of insiders); In re U.S.
Medical, Inc., 531 F.3d 1272, 1278 (10th Cir. 2008) (Non-statutory insider is one where the
relationship between the parties is sufficiently close and transaction is not conducted at arm’s
length.).
19 In re Kunz, supra at 1079 (refusing to determine whether Bank was a non-statutory insider of the
debtor on summary judgment).
20 Because the Trust has not yet filed its answer to the complaint, there may be other defenses that
may be asserted to the preference claim and the Court makes no determination today regarding the
viability of any such defenses.
7
Case 14-05039 Doc# 13 Filed 06/16/14 Page 7 of 12

The Fraudulent Transfer Claims, § 548(a)(1)(A) and (B)(i) and(ii)(I)

 The Trust’s contention for dismissal or summary judgment boils down to this:
Paul’s $35,000 payment to the Trust was in payment of a judgment entered against
Paul in state court for breach of contract on the purchase option he exercised with
Alex for Lenore’s restaurant. Those facts standing alone do not dictate a conclusion
that the transfer was made with intent to hinder, delay or defraud Paul’s creditors or
that he received less than reasonably equivalent value [REV] for the payment. Nor
did Speth plead factual circumstances from which either fraudulent intent or the lack
of REV may be inferred. Under these circumstances, the Trust contends it is entitled
to dismissal for failure to state a claim or for judgment as a matter of law on the
uncontroverted facts. The Court first examines the actual fraud component of § 548
– subsection (a)(1)(A) and assesses whether Speth’s amended complaint states a
plausible claim for relief on its face under Twombly’s and Iqbal’s facial plausibility
standard.21

21 Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007); Ashcroft v. Iqbal, 556 U.S. 662 (2009).

22 Rule 8, made applicable in bankruptcy adversary proceedings by Fed. R. Bankr. P. 7008(a),
stresses notice pleading, requiring only “a short and plain statement of the claim showing that the
pleader is entitled to relief.” Rule 9 (made applicable by Fed. R. Bankr. P. 7009), on the other hand,
requires that fraud be pled with particularity: “In alleging fraud . . . a party must state with
particularity the circumstances constituting fraud . . . . Malice, intent, knowledge, and other
conditions of a person’s mind may be alleged generally.”

 The sufficiency of pleading a fraud-based claim is especially difficult to gauge
where Fed. R. Civ. P. 8 and 9 seem to collide.22 The Tenth Circuit discussed the
Twombly standard in Robbins v. Oklahoma:

[Previously], [u]nder this construction of Rule 8(a), a complaint
containing only conclusory allegations could withstand a motion to
dismiss unless its factual impossibility was apparent from the face of
the pleadings – that is, a complaint was immune from dismissal if it left


open the possibility that a fact not alleged in the complaint could render
the complaint sufficient. . . .

 

Under this revised standard [Twombly], as we explained in Ridge at Red
Hawk, L.L.C. v. Schneider:

 

The mere metaphysical possibility that some plaintiff
could prove some set of facts in support of the pleaded
claims is insufficient; the complaint must give the court
reason to believe that this plaintiff has a reasonable
likelihood of mustering factual support for these claims.

 

493 F.3d 1174, 1177 (10th Cir. 2007) (emphasis in original). The burden
is on the plaintiff to frame a “complaint with enough factual matter
(taken as true) to suggest” that he or she is entitled to relief. Twombly,
127 S.Ct. at 1965. “Factual allegations must be enough to raise a right
to relief above the speculative level.” Id. . . .

 

As best we understand it, however, the opinion seeks to find a middle
ground between “heightened fact pleading,” which is expressly rejected,
. . . and allowing complaints that are no more than “labels and
conclusions” or “a formulaic recitation of the elements of a cause of
action,” which the Court stated “will not do.” [citations omitted.].23

23 419 F.3d 1242, 1246-47 (10th Cir. 2008).

 

 Looking at Speth’s amended complaint in light of this Tenth Circuit guidance,
and keeping in mind the confusion stemming from Speth’s stating that his claim is
asserted under § 547, the sum total of the substantive allegations of actual fraud are
that:

7. During the “insider” preference period prior to commencement of this
case, the Debtor transferred to [the Trust], a payment amount of
$35,000.00 (hereinafter the “Transfer”).

 

8. The Transfer was made with the actual intent to hinder, delay or
defraud the Debtor’s existing creditors.

 

* * *

 

10. The Debtor was insolvent when the Transfer was made, or became


insolvent as a result of the Transfer.24
There are no factual circumstances described from which it may be inferred
that the transfer was fraudulently made. We only know the transfer occurred
between 90 days and 1 year before the filing of debtor’s bankruptcy, not when, where,
or how the transfer occurred. He identifies the transfer as a “payment” but does not
identify for what the payment was made. The factual allegations are so sketchy and
incomplete that the amended complaint does not give fair notice of the fraudulent
intent necessary to support the fraudulent transfer claim. The Court would expect to
see factual allegations in the complaint that show one or more of the badges of fraud.
They include: (1) whether transfer was to an insider; (2) whether transfer retained
possession or control of property after transfer; (3) concealment of the transfer; (4)
pending or threatened litigation against debtor at time of transfer; (5) transfer of
substantially all of debtor’s assets; (6) absconding by debtor; (7) removal or
concealment of assets; (8) reasonably equivalent value in exchange for transfer; (9)
debtor’s insolvency at time of the transfer; and (10) proximity in time to incurring
substantial debt.25
At best, Speth alleged in a conclusory fashion that debtor was insolvent at the
time of the transfer and did not receive reasonably equivalent value in return. There
was no specific allegation that the Trust was an insider of the debtor or explain
24 Adv. Dkt. 2-1.
25 See Zubrod v. Kelsey (In re Kelsey), 270 B.R. 776, 782 (10th Cir. BAP 2001) (In deciding whether
transfer of bank account funds to wife was made with actual intent to hinder, delay or defraud
creditors, bankruptcy court may consider circumstantial evidence establishing badges of fraud); In re
Hertzler Halstead Hosp., 334 B.R. 276, 292 (Bankr. D. Kan. 2005) (because the requisite fraudulent
intent is rarely admitted by a debtor, courts look to circumstantial evidence establishing badges of
fraud).
10
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debtor’s relationship to the Trust. At its best, the amended complaint pleads “labels
and conclusions” or “formulaic recitation of the elements of a cause of action” which
Twombly says is not good enough.26 The Court concludes that these allegations “ . . .
are so general that they encompass a wide swath of conduct, much of it innocent,
[that] the plaintiffs ‘have not nudged their claims across the line from conceivable to
plausible.”27 Speth’s purported claim for avoidance of an actually fraudulent transfer
does not state a claim upon which relief may be granted and must be DISMISSED.28
Section 548(a)(1)(B) empowers the trustee to avoid constructively fraudulent
transfers. Here, Speth invokes subsection (a)(1)(B)(i) and (ii) – debtor received less
than REV in exchange for the payment and was insolvent at the time of the transfer
or became insolvent as a result of the transfer. Like the actually fraudulent transfer
allegations, Speth merely recites the language of § 548(a)(1)(B) and does not allege
factual circumstances. But the Trust’s additional statement of material facts places
the transfer in context. Even assuming the § 548(a)(1)(B) claim is sufficiently pled,
the debtor cannot avoid summary judgment on this claim. The uncontroverted facts
establish that the $35,000 transfer was in payment of the judgment granted by the
26 550 U.S. at 555.
27 Robbins v. Oklahoma, 419 F. 3d 1242, 1247. See In re Crescent Oil Co., Inc., 2011 WL 3878377 at
*1 (Bankr. D. Kan. Aug. 31, 2011) (complaints for avoiding fraudulent transfers under § 548(a)(1)(A)
have heightened pleading requirements under Rule 9 and must plead the circumstances of the
alleged fraud to place the defendant on notice of the precise misconduct with which it is charged).
28 Even if the Court treats the Trust’s motion as one for summary judgment, that motion would also
be granted. The additional statements of material fact that place the transfer in context – payment
of a judgment granted in favor of the Trust for debtor’s breach of contract – does not in any fashion
implicate fraudulent misconduct by the debtor. It alleges a transfer of money to a creditor to satisfy
a bona fide legal obligation -- payment of a judgment debt. There was an absence of anything in the
record to show a genuine dispute of a material fact and the record is devoid of fraudulent conduct –
an essential element of a fraudulent transfer claim under § 548(a)(1)(A). See Butler v. Loomer (In re
Loomer), 222 B.R. 618, 623 (Bankr. D. Neb. 1998) (transfers that were simply payments on a bona
fide preexisting loan negates any inference of fraudulent intent)
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state court and owed by debtor to the Trust. Section 548(d)(2)(A) defines “value” to
include the satisfaction of an antecedent debt. By paying the judgment, the debtor
received a dollar for dollar reduction of his debt to the Trust and in this case satisfied
the state court judgment. This constitutes reasonably equivalent value for the
transfer.29 Because debtor received REV in exchange for the transfer, it may not be
avoided as constructively fraudulent. The Trust is entitled to summary judgment on
this claim.
Orders
The Trust’s motion to dismiss or for summary judgment on the § 547 preference
claim is DENIED. The Trust’s motion to dismiss or for summary judgment on the §
548 fraudulent transfer claims (actually fraudulent and constructively fraudulent) is
GRANTED. The Trust shall have 14 days to file its answer to the amended complaint
and thereafter, a scheduling conference will be set in this matter.
# # #
29 See Jobin v. McKay (In re M&L Business Mach. Co., Inc.), 84 F.3d 1330, 1342 (10th Cir. 1996)
(debtor received reasonably equivalent value for payments where payments to investor reduced the
investor’s restitution claim); In re Adam Aircraft Ind., Inc., 493 B.R. 834, 845-46 (Bankr. D. Colo.
2013) (payments to former company president that satisfied corporate debtor’s monetary obligations
under separation agreement were supported by reasonably equivalent value in form of dollar-fordollar
reduction of obligations and could not be avoided as constructively fraudulent); In re Wiley,
438 B.R. 331, 334 (Bankr. D. N.M. 2010) (debtor received reasonably equivalent value for loan
payments to Farm Credit because his loan balance was reduced dollar-for-dollar).
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