Cox v. Penney (In re Penney)

632 B.R. 181

IN RE: Michael L. PENNEY and Belinda S. Penney, Debtors.

Richard L. Cox, Trustee, Plaintiff

v.Kristy Nicole Penney, Defendant

Case No. 4:19-bk-11746J

AP Case No. 4:20-ap-01035

United States Bankruptcy Court, E.D. Arkansas, Central Division.

Signed September 22, 2021

Charles T. Coleman, Laura E. Cox, Wright, Lindsey & Jennings, LLP, Little Rock, AR, Richard L. Cox, Richard Cox, PA, Hot Springs, AR, for Plaintiff.

William F Godbold, IV, Natural State Law, PLLC, Little Rock, AR, for Defendant.

ORDER GRANTING IN PART AND DENYING IN PART MOTION FOR SUMMARY JUDGMENT

Phyllis M. Jones, United States Bankruptcy Judge

Before the Court is the Motion for Summary Judgment (the "Motion ") (Doc. No. 32) filed by the Plaintiff, Richard L. Cox, Trustee (the "Trustee "), along with a brief in support of same (Doc. No. 33), and a Statement of Undisputed Material Facts ("SUF ") (Doc. No. 34). Also before the Court is the Response to Motion for Summary Judgment (the "Response ") (Doc. No. 36) filed by the Defendant, Kristy Nicole Penney (the "Defendant "), along with her brief in support of same (Doc. No. 37), and Statement of Disputed Material Facts ("SDF ") (Doc. No. 38). The Trustee also filed a reply in support of his motion (the "Reply ") (Doc. No. 39).¹

I. Jurisdiction

The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334 and 157. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(H). For the following reasons, the Court finds the Motion should be granted in part and denied in part. See FED. R. CIV. P. 56(a) ("The court should state on the record the reasons for granting or denying the motion.").

II. Facts

The underlying bankruptcy case was filed on April 1, 2019, by Michael L. Penney (the "Debtor ") and Belinda S. Penney (the "Joint Debtor ") (collectively, the "Debtors "). The Trustee filed the adversary proceeding before the Court on June 19, 2020, seeking to avoid a transfer of approximately 2.48 acres of real estate commonly known as 15 Miller Point Road, Quitman, Arkansas (the "Property ").

(Compl. Ex. 2). The Trustee also seeks authority to sell the Property and requests the Court to determine the allocation of the costs and expenses of the sale. (Compl. ¶¶ 35–42).

The Defendant is the Debtor's daughter. (SUF ¶ 1). The Defendant does not dispute that on December 13, 2013, the Debtor, a married person, and the Defendant acquired title to the Property pursuant to a special warranty deed. (SUF ¶ 1; Compl. Ex. 1). The Defendant does not dispute that the Debtor paid all of the purchase price for the Property in the amount of $42,014.70, and $500.00 in earnest money. (Compl. ¶ 10; Answer ¶ 1). In addition, the Defendant does not dispute that on May 4, 2018, the Debtors, husband and wife, executed and delivered to the Defendant a warranty deed conveying their interest in the Property to the Defendant (the "Transfer "). (SUF ¶ 2; Compl. Ex. 2). Also undisputed is the fact that no consideration or value was exchanged for the Transfer. (SUF ¶ 3).

There is a single-family residence located on the Property and the residence and acreage are valued on the Cleburne County Tax Assessor's records at $134,070.00. (SUF ¶ 4). The Defendant currently resides on the Property. (SUF ¶ 6). There is currently no mortgage, lien, or encumbrance on the Property. (SUF ¶ 5).

In support of his Motion, the Trustee relies on his Complaint, the exhibits attached to the Complaint, the Defendant's Answer, his SUF, his brief, and the exhibits attached to the Motion. He attached the following four exhibits to his Motion:

(1) The Cleburne County real estate assessment for the Property dated February 12, 2021. (Mot. Ex. A). The Defendant is listed on the report as the property owner.

(2) An affidavit of the Trustee (the "Trustee's Affidavit "). (Mot. Ex. B). In the Trustee's Affidavit, the Trustee states that the bankruptcy schedules, statement of financial affairs, proofs of claim filed in the case, and a certain financial statement indicate that the Debtors were insolvent on May 4, 2018 (the "Transfer Date "). In support of this statement, the Trustee points to four guaranties executed by the Debtor guaranteeing certain debts of Mid-Ark Utilities & Rig Services, Inc. ("Mid-Ark "). He further points to a note executed by the Debtors in favor of Centennial Bank in the original principal amount of $360,000.00. In his affidavit, the Trustee states that while a financial statement of the Debtors dated February 28, 2018 (the "Financial Statement ") shows a net worth of $720,497.00, the Financial Statement failed to include the guaranteed debts and the liability owed on the note to Centennial Bank. When included, the Trustee states the Debtors' assets were less than their liabilities on the Transfer Date. In support of his statements, the Trustee attached the following six exhibits to his affidavit:

• Proof of Claim of BMO Harris Bank N.A. (Mot. Ex. B, Ex. 1). The proof of claim filed by BMO Harris Bank N.A. ("BMO Harris ") (Claim No. 1-1) in the Debtors' main bankruptcy case reflects an unsecured claim in the amount of $135,933.66. The documents attached to the claim include a loan and security agreement executed by Mid-Ark and a continuing guaranty executed by the Debtor in favor of BMO Harris guaranteeing the payment of the obligations.

• Proof of Claim of Trans Lease, Inc. (Mot. Ex. B, Ex. 2). The amended proof of claim filed by Trans Lease, Inc. ("Trans Lease ") (Claim No. 3-2) in the Debtors' main bankruptcy case reflects an unsecured claim in the amount of $294,418.00 based on a "Breach of Continuing Guaranty."

The documents attached to the claim include a vehicle lease executed by Mid-Ark and a continuing guaranty signed by the Debtor and Lonnie Keith Graham agreeing to be jointly and severally liable for payment of the obligations.

• Proof of Claim 6-1 of VFS Leasing Co. (Mot. Ex. B, Ex. 3). The proof of claim filed by VFS Leasing Co. ("VFS Leasing ") (Claim No. 6-1) in the Debtors' main bankruptcy case reflects an unsecured claim in the amount of $500,231.26 based on a "Deficiency Balance." The documents attached to the claim include a lease agreement executed by Mid-Ark and a continuing guaranty signed by the Debtor and Lonnie Graham agreeing to be jointly and severally liable for payment of the obligations.

• Proof of Claim 7-2 of VFS Leasing (Mot. Ex. B, Ex. 4). The second proof of claim, as amended, filed by VFS Leasing (Claim No. 7-2) in the Debtors' main bankruptcy case reflects an unsecured claim in the amount of $18,077.16 based on a "Deficiency Balance." The documents attached to the claim reference a lease agreement with Mid-Ark. Also attached is a continuing guaranty signed by the Debtor and Lonnie Graham agreeing to be jointly and severally liable for payment of certain obligations.

• Foreclosure and Replevin Complaint (Mot. Ex. B, Ex. 5). The Trustee also attached to his affidavit a foreclosure and replevin complaint filed on February 25, 2019, by Centennial Bank against Mid-Ark, the Debtors, Lonnie Graham, and others, involving two loans. The complaint alleges the first loan is secured by a mortgage granted to Centennial Bank by the Debtors, Lonnie Graham, and Tracy Graham on real property located at 2095 Goff Road, Quitman, Arkansas. The complaint alleges that $341,621.14 was due on the first loan as of February 14, 2019. The complaint alleges the second loan is secured by a mortgage granted to Centennial Bank by the Debtors, Lonnie Graham, and Tracy Graham on real property located at 2075 Goff Road, Quitman, Arkansas. The complaint alleges that $41,078.31 is due on the second loan as of February 14, 2019. The foreclosure action sought both in rem and in personam judgments.

• The Financial Statement (Mot. Ex. B, Ex. 6). The final exhibit attached to the Trustee's Affidavit is the Financial Statement. It is dated February 28, 2018, and was issued for the benefit of Heber Springs State Bank. The Financial Statement reflects total assets of $998,793.00 and total liabilities of $278,296.00, resulting in a net worth of $720,497.00. The accuracy of the Financial Statement is disputed by both parties. (SUF ¶10, SDF ¶¶ 1–2).

(3) The Debtors' amended statement of financial affairs (the "Amended SOFA ") filed on May 2, 2019. (Mot. Ex. C). The Amended SOFA disclosed the Transfer that is the subject of this adversary proceeding and states, "Debtor issued deed to daughter for the real property titled jointly in their names. Daughter lives in house and pays taxes and insurance. Debtor has no equitable interest." (Mot. Ex. C at 5). The Amended SOFA also states, "No value was exchanged. Debtor issued deed to Daughter to remove his name from the property as he has no equitable interest in the property. Home is valued at approximately $125,000.00." (Mot. Ex. C at 5). The Amended SOFA discloses numerous other transfers both to family members and to "bona fide purchaser[s]." (Mot. Ex. C at 5–6). A summary of those transfers is as follows:

Transferee And Relationship	Description and value of property	Property or payments received or debts paid in exchange	Date of Transfer
Crain Kia of ConwayNone	2015 Jeep CherokeeValue $11,460.00	US BANK lien in amount of $10,523.91 paid off.	Dec 13, 2017
Kasey & Gary Carter Daughter & Son-in-law	2008 Jayce popup camper estimated value $450	$0	Feb 2018
Kasey & Gary Carter Daughter & Son-in-law	2005 Lake Sport Boat;value unknown. It had Broken lower unit in 2016 when traded for Bad Boy Buggy	Bad Boy Buggy. Estimated value of Bad Boy Buggy: $300.00	Feb 2018
Kasey & Gary Carter Daughter & Son-in-law	5'10 Utility Trailer;Estimated value $300.00	$0	Feb 2018
Crain Kia of Conway None (bona fide purchaser)	Debtor was co-signer on mother 2014 Ford Fiesta.	Mother sold it 9/19/2018 for $5,000.00. There was $3,714.51 owed on lien. $1,285.51 went to Debtor's mother.	Sept 19, 2018
Warron O. Justice and Mary JusticeNone(bona fide purchaser)	2190 Goff Road Quitman, ARValue $420,000	Debtors sold home for $420,000. $220,000 paid off

...