Ferguson v. Taylor (In re Taylor)

642 B.R. 912

IN RE: Brian Paul TAYLOR, Debtor

J. Brian Ferguson, Chapter 7 Trustee, Plaintiff

v.Stacey Marie Taylor, Defendant

Case No. 3:21-bk-71360, 3:21-ap-07037

United States Bankruptcy Court, W.D. Arkansas, Harrison Division.

Signed August 15, 2022

James R. Baxter, Baxter Law Firm, Benton, AR, for Plaintiff.

J. Brian Ferguson, Ferguson Law Firm, PLLC, Rogers, AR, Plaintiff, pro se.

Ricky E. Watson, Watson Law Firm of Harrison, Harrison, AR, for Defendant.

ORDER AND OPINION GRANTING TRUSTEE'S MOTION FOR SUMMARY JUDGMENT

Honorable Bianca M. Rucker, United States Bankruptcy Judge

Brian Paul Taylor [debtor] filed his chapter 7 voluntary petition on September 23, 2021. The same day, J. Brian Ferguson [trustee] was appointed as the chapter 7 trustee of the debtor's bankruptcy estate. On December 23, 2021, the trustee filed this adversary proceeding against the debtor's ex-wife, Stacey Taylor [defendant or Ms. Taylor]. In his complaint, the trustee alleges that the debtor fraudulently transferred three parcels of real property to Ms. Taylor and seeks to avoid the transfers pursuant to 11 U.S.C. § 548(a)(1). The trustee contends that the transfers constitute both actual fraud under 11 U.S.C. § 548(a)(1)(A) and constructive fraud under § 548(a)(1)(B). To the extent the Court finds that the transfers were fraudulent under either or both subsections of § 548(a)(1), the trustee requests turnover of the subject properties for the benefit of the debtor's estate pursuant to 11 U.S.C. § 542 and § 550. On February 21, 2022, the trustee filed a motion for summary judgment as to his cause of action under § 548(a)(1)(A), a brief in support, and a statement of undisputed material facts. On March 21, 2022, Ms. Taylor filed her response and an incorporated brief that included her response to the trustee's statement of undisputed facts. On June 14, 2022, the trustee filed his reply to Ms. Taylor's response. For the reasons stated below, the Court grants the trustee's motion for summary judgment and finds as a matter of law that the debtor's transfers of the three parcels to Ms. Taylor constitute avoidable fraudulent transfers under § 548(a)(1)(A).

Summary Judgment

Federal Rule of Bankruptcy Procedure 7056 provides that Federal Rule of Civil Procedure 56 applies in adversary proceedings. Rule 56 states that summary judgment shall be rendered "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to a judgment as a matter of law."

Fed. R. Civ. P. 56(a). The burden is on the moving party to establish the absence of a genuine issue of material fact and that it is entitled to judgment as a matter of law. Canal Ins. Co. v. ML & S Trucking, Inc. , No. 2:10-CV-02041, 2011 WL 2666824, at *1 (W.D. Ark. July 6, 2011) (citing Matsushita Elec. Indus. Co. v. Zenith Radio Corp. , 475 U.S. 574, 586-87, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) ; Nat'l Bank of Commerce of El Dorado, Ark. v. Dow Chem. Co. , 165 F.3d 602 (8th Cir. 1999) ); see also Celotex Corp. v. Catrett , 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) (citing to former Fed. R. Civ. P. 56(c) ). The burden then shifts to the non-moving party, who must show "that the materials cited do not establish the absence or presence of a genuine dispute, or that an adverse party cannot produce admissible evidence to support the fact." Fed. R. Civ. P. 56(c)(1)(B). The non-moving party is not required to present a defense to an insufficient presentation of facts by the moving party. Adickes v. S.H. Kress & Co. , 398 U.S. 144, 161, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970) (quoting 6 J. Moore, Fed. Prac. 56.22(2), pp. 2824-25 (2d ed. 1966)). However, if the non-moving party fails to address the movant's assertion of fact, the court may consider the fact undisputed. Fed. R. Civ. P. 56(e)(2). When ruling on a summary judgment motion, the court must view the facts in the light most favorable to the non-moving party and allow that party the benefit of all reasonable inferences to be drawn from the evidence. Canada v. Union Electric Co. , 135 F.3d 1211, 1212-13 (8th Cir. 1997) ; Ferguson v. Cape Girardeau Cty ., 88 F.3d 647, 650 (8th Cir. 1996).

Facts

The debtor and Ms. Taylor married in 2001. During the parties’ marriage, the debtor operated a gold refinery and a timber business. Until 2015, the debtor obtained loans for the gold refinery under the name of an LLC of which he was the sole member. (Stacey Taylor's Rule 2004 Exam. Tr. [Tr.] 12-13, Nov. 30, 2021.)¹ By 2015, however, the debtor's gold refinery had incurred debt that the debtor did not want to pay, leading him to ask Ms. Taylor to create a new LLC of which she would be the sole member and under which the debtor would continue to run his existing gold refinery. She did as he asked and created Mid-South Assay & Diamonds, LLC. (Tr. 11-13.) Ms. Taylor understood from the debtor that the purpose of creating the new LLC was so the debtor could avoid paying the loans incurred by his LLC while taking out additional loans for his gold refinery in the name of the new LLC. (Tr. 12-13.)

In 2017, the debtor instructed Ms. Taylor to create a second LLC, again with her as the sole member, because he wanted to start a logging business. At the debtor's behest, she created Golden Timber, LLC, and financed the logging equipment the debtor needed through this second LLC. (Tr. 18-20.)

Additionally, in accordance with the debtor's expressed wishes, all bank accounts that he used and maintained control over—both business and personal—were held in only Ms. Taylor's name because the debtor "didn't want to show income, because he didn't want creditors to be able to see income." (Tr. 50-52.) Although his name was not on the accounts, the debtor had access to the funds in Ms. Taylor's accounts and frequently signed her name to checks drawn on those accounts. (Tr. 50-53.)

On December 16, 2020, the debtor filed a complaint for divorce from Ms. Taylor in Baxter County Circuit Court [state court]. Although the debtor was represented by an attorney during the divorce proceedings, Ms. Taylor chose not to retain counsel because she believed she would not get "a penny more than [the debtor] wanted to give [her] anyway" and she wished to "stay on his good side." (Tr. 25.) On January 12, 2021, the debtor and Ms. Taylor executed and filed with the state court a Child Custody Separation and Property Settlement Agreement upon which the parties had agreed [original agreement]. (Pl.’s Ex. 4.) Ms. Taylor signed the original agreement voluntarily and under no pressure from the debtor. (Tr. 70.) On January 21, 2021, the state court entered a divorce decree that incorporated the original agreement. (Pl.’s Ex. 5.) Contrary to how the parties had maintained the aforementioned assets during their marriage, the original agreement provided, in relevant part, that all of the parties’ real property and any corresponding debt would be vested in the debtor.² The original agreement contained the following provision:

WHEREAS, it is the desire and intention of the parties that their relations with respect to the property and financial matters be finally fixed by this agreement in order to determine in all respects and for all purposes their respective present and future property rights, claims, and demands in such a manner that any action with respect to the rights and obligations, past present, or future, of either party with respect to the other, be finally and conclusively settled and determined by this agreement.

(Pl.’s Ex. 4.) Despite this provision, the debtor verbally promised to Ms. Taylor in conjunction with the original agreement that "if [she] got [her] mother to go buy [her] a house in Mountain Home, that he would pay [her] mortgage up to $80,000." (Tr. 25.) The debtor told Ms. Taylor that "he could not put that in writing in the divorce decree because—that a judge wouldn't sign off on it because he doesn't show any income." (Tr. 70.)

Around the date that the parties’ divorce was finalized on January 21, 2021, Ms. Taylor was scheduled to interview for a job. Initially, she did not tell the debtor that she was getting a job because she "knew that he was not going to handle that well." (Tr. 26.) The debtor learned of Ms. Taylor's employment opportunity on the same morning that she was supposed to interview for the position. In response to finding out about her interview, the debtor told Ms. Taylor that "he never planned on giving [her] any of the money that he told [her] he was going to give [her]." (Tr. 26.) Ms. Taylor cancelled the interview as a result. In late January 2021—the same month the parties’ divorce had become final—they reconciled.

Two months later, in March 2021, the debtor met with a bankruptcy attorney to discuss filing a bankruptcy case. The attorney advised the debtor that putting the properties in his name under his original agreement with Ms. Taylor had been a mistake because the properties could be taken by the trustee to pay his creditors. After his bankruptcy consultation, the debtor told Ms. Taylor that he "needed to put it all back in [her] name" in order to keep the property out of his bankruptcy. (Tr. 27-28.) To that end, on April 29, 2021, the debtor filed a Petition to Modify Property Settlement Agreement in state court [petition]. (Pl.’s Ex. 6.) Attached to the petition was a modified agreed order [modified agreement] signed by the debtor, the debtor's divorce attorney, and Ms. Taylor. The modified agreement provided that Ms. Taylor would continue to reside in and own the properties and the debtor would transfer his interest in the properties to her by quitclaim deed. The same date the debtor filed the petition in state court, the debtor and Ms. Taylor executed and caused to be recorded three quitclaim deeds through which the debtor transferred his interest in the three parcels of property to Ms. Taylor. (Pl.’s Ex. 7.) The state court entered an order approving the parties’ modified agreement on April 30, 2021.

The...