Gold v. Wall (In re Wall)

661 B.R. 365

IN RE: Terry WALL, Jr., and Jacalynn Wall, Debtors.

Stuart A. Gold, Trustee, Plaintiff, v. Terry Lee Wall, Sr., and Judith A. Wall, Defendants.

Case No. 23-45894

Adv. No. 23-4366

United States Bankruptcy Court, E.D. Michigan, Southern Division

Signed June 21, 2024

Elias T. Majoros, Gold, Lange, Majoros & Smalarz, Southfield, Michigan, Attorney for Plaintiff Stuart A. Gold, Trustee.

James C. Warr, James C. Warr & Associates, PLC, Southfield, Michigan, Attorney for Defendants Terry Lee Wall, Sr. and Judith A. Wall.

OPINION REGARDING CROSS-MOTIONS FOR SUMMARY JUDGMENT

Thomas J. Tucker, United States Bankruptcy Judge.

I. Introduction

This is a fraudulent transfer case. The Defendants, Terry Lee Wall, Sr. and Judith A. Wall, are the parents of the Chapter 7 Debtor Terry Wall, Jr. Before he filed bankruptcy, the Debtor held a one-third ownership interest in certain unencumbered real property, which he owned jointly with his parents. In 2020, before filing bankruptcy, the Debtor transferred his one-third interest in the real property to his parents, and received nothing in exchange for the transfer. It is undisputed that at the time of the transfer the Debtor was insolvent, or was rendered insolvent by the transfer. Shortly after the transfer, the Debtor's parents sold the real property for $51,000.00, and retained all of the sale proceeds.

In this adversary proceeding, the Plaintiff Trustee seeks to avoid the Debtor's transfer as a fraudulent transfer, and to recover one-third of the sale price of the property for the benefit of the bankruptcy estate.¹ This adversary proceeding is before the Court on cross-motions for summary judgment.²

The single count in the Plaintiff Trustee's amended complaint alleges that the Debtor's transfer of the real property is avoidable as a fraudulent transfer under the combination of 11 U.S.C. § 544(b) and Michigan law, on three theories: (1) as an intentionally fraudulent transfer (a transfer made by the Debtor "[w]ith actual intent to hinder, delay, or defraud" his creditors), under Mich. Comp. Laws § 566.34(1)(a); (2) as a constructively fraudulent transfer under Mich. Comp. Laws §§ 566.34(1)(b); and (3) as a constructively fraudulent transfer under Mich. Comp. Laws § 566.35(1).

In his motion for summary judgment, the Plaintiff seeks a money judgment in the amount of one-third of the sale proceeds, jointly and severally against the Defendants, based on the constructive fraudulent transfer claims. In their motion for summary judgment, the Defendants seek summary judgment on all of the Plaintiff's claims.

After the parties filed their summary judgment motions, the Plaintiff abandoned his intentional fraudulent transfer claim, and asked the Court to dismiss it.³ So the Court will dismiss that claim.

As for the Plaintiff's constructive fraudulent transfer claims, the summary judgment motions focus on the disputed issue of whether the Debtor Terry Wall, Jr. received "reasonably equivalent value" for his transfer to his parents of his one-third interest in the real property at issue. That is the only element in dispute, at least as to the Plaintiff's constructive fraudulent transfer claim under Mich. Comp. Laws § 566.35(1).

For the reasons discussed below, the Court concludes that the Debtor did not receive reasonably equivalent value for the transfer of this one-third interest in the real property to the Defendants. Because of this, and because it is undisputed that the Plaintiff has established all of the other elements of his constructive fraudulent transfer claim, the Court will grant the Plaintiff's motion for summary judgment, and deny the Defendants' motion.

II. Jurisdiction

This Court has subject matter jurisdiction over this adversary proceeding under 28 U.S.C. §§ 1334(b), 157(a), and 157(b)(1), and Local Rule 83.50(a) (E.D. Mich.). As to each of the claims in Plaintiffs' complaint,⁴ this is a core proceeding under 28 U.S.C. 157(b)(2)(H).

This proceeding also is "core" because it falls within the definition of a proceeding "arising under title 11" and of a proceeding "arising in" a case under title 11. See 28 U.S.C. § 1334(b). Matters within either of these categories are deemed to be core proceedings. Allard v. Coenen (In re Trans-Industries, Inc.), 419 B.R. 21, 27 (Bankr. E.D. Mich. 2009). This is a proceeding "arising under title 11" because it is "created or determined by a statutory provision of title 11," id., including the provisions of 11 U.S.C. §§ 544(b), and 550. This proceeding is one "arising in" a case under title 11, because it is a proceeding that "by [its] very nature, could arise only in bankruptcy cases." Id.

For these reasons, this Court has statutory authority, under 28 U.S.C. § 157(b)(1), to enter a final judgment on all of Plaintiff's claims. If and to the extent this Court might otherwise lack constitutional authority to enter a final judgment, under Stern v. Marshall, 564 U.S. 462, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011), such a problem does not exist in this case. This is because all of the parties have expressly, knowingly, and voluntarily consented to this bankruptcy court entering a final order or judgment, as permitted by 28 U.S.C. § 157(c)(2).⁵ Given that consent, this bankruptcy court has both statutory and constitutional authority to enter a final judgment on all of the Plaintiffs' claims. See Ralph Roberts Realty, LLC v. Savoy (In re Ralph Roberts Realty), 562 B.R. 144, 147-48 (Bankr. E.D. Mich. 2016) (discussing, among other cases, Wellness Int'l Network, Ltd. v. Sharif, 575 U.S. 665, 135 S.Ct. 1932, 191 L.Ed.2d 911 (2015)); Schubiner v. Zolman (In re Schubiner), 590 B.R. 362, 376 (Bankr. E.D. Mich. 2018); Dery v. Karafa (In re Dearborn Bancorp, Inc.), 583 B.R. 395, 400 (Bankr. E.D. Mich. 2018).

III. Facts

The material facts are not in dispute.

A. The Defendants' March 22, 2017 transfer of real property to the Debtor

On March 22, 2017, the Defendants, Terry L. Wall Sr. and Judith A. Wall, transferred to their son, the Debtor Terry L. Wall, Jr. (the "Debtor"), a one-third interest in real property they owned, located at 17445 Lincoln, East Pointe MI 48021 (the "Property"). Such transfer was made by quit claim deed (the "2017 Quit Claim Deed"), which recited that it was "for the full consideration of: One ($1.00) Dollar."⁶ The 2017 Quit Claim Deed was drafted by an attorney and entitled "QUIT CLAIM DEED — STATUTORY FORM."⁷ This Deed was accepted by the Debtor,⁸ and was recorded at the register of deeds for Macomb County, Michigan on April 26, 2017.⁹

B. Background regarding the Property

The Defendants had purchased the Property on May 9, 1990, when the Debtor was eleven years old. The Defendants had paid in full all of the mortgages on the Property by 2008 or 2009, so at the time of the March 22, 2017 transfer, there were no mortgages on the Property.¹⁰ The Debtor did not make any contributions toward the purchase of the Property or toward paying off the mortgages on the Property.

Sometime in or before 2011, the Debtor, who had been living elsewhere in a home he had purchased, moved into the Property, after losing his own home in a foreclosure sale. In 2011, the Defendants, who still owned the Property, moved out of the Property, and into their current home located in New Baltimore, Michigan. The Debtor continued to live at the Property after his parents moved out. After the Debtor got married in 2015, he lived at the Property with his wife, the Joint Debtor in the main bankruptcy case, and their children. The Debtor and his family were living at the Property at the time of the March 22, 2017 transfer.

C. The reason for the Defendants' March 22, 2017 transfer to the Debtor

According to the declarations under penalty of perjury filed by each of the Defendants in this adversary proceeding, at the time of the March 22, 2017 transfer, the Defendants intended to give the Debtor an ownership interest in the Property so that he would be able to claim the real estate tax Homestead Exemption in the Property, and thereby obtain a significant real estate tax savings for himself and the Defendants. According to the Defendants, an employee of the taxing authority (the City of Eastpointe, Michigan) had advised them that the person residing at the Property could not claim the Homestead Exemption unless that person was an owner of the Property, and that without the Homestead Exemption, the taxes on the Property would increase significantly. According to the Defendants, the taxing authority employee suggested that they put the Debtor's name on the deed to the Property so he would be an owner who could claim the Homestead Exemption. Each of the Defendants filed a declaration under penalty of perjury which states, in relevant part:

14. My spouse and I were told by the City of Eastpointe that the Property would lose its status as a homestead unless it were titled to a person who actually lived there.

15. My spouse and I were told that if the Property were not considered a homestead, the property taxes on it would increase significantly.

16. An employee of the City of East-pointe suggested that Terry Lee Wall, Jr.'s name be put on the deed to the Property so that the Property would maintain its homestead status.

17. On March 22, 2017, my spouse and I quitclaimed the Property to Terry Lee Wall, Jr. and ourselves.

18. The purpose of the March 22, 2017, quit claim deed was to maintain the homestead status of the Property.¹¹

D. Payment of rent for, real estate taxes on, and improvements to the Property

In their declarations, the Defendants allege that the Debtor and/or his wife paid them rent sporadically while living on the Property, but that the total rent payments to them was "probably less than $1,000.00."¹² But nowhere do they say that there was any agreement requiring the Debtor to pay the Defendants any rent. There is no evidence of any such agreement. The Debtor paid the utilities while living at the Property,¹³ even though there is no evidence of...