Nathan v. Libra (In re Libra)

584 B.R. 550

IN RE: James S. LIBRA, Debtor.

Kenneth Nathan, Trustee, Plaintiff,

v.Nancy Libra, Defendant.

Case No. 16–54467–mlo

Adv. Pro. No. 17–04289–mlo

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

Signed May 09, 2018

Jeffrey H. Bigelman, Yuliy Osipov, Osipov Bigelman, P.C., Southfield, MI, for Plaintiff.

Ethan D. Dunn, Maxwell Dunn, PLC, Southfield, MI, Rohn H. Mitchell, Detroit, MI, for Defendant.

OPINION AFTER TRIAL

Maria L. Oxholm, United States Bankruptcy Judge

I. INTRODUCTION

This matter is before the Court upon conclusion of a trial on the merits on February 23, 2018. The plaintiff Kenneth Nathan ("Trustee") filed this adversary proceeding to avoid prepetition transfers from debtor James Libra ("Debtor") to defendant Nancy Libra ("Defendant") including certain court ordered transfers and obligations that arose as a result of a consent judgment of divorce between the parties in the Wayne County Circuit Court. Specifically, Trustee asserts that the transfers of Debtor's interest in the parties' marital home and of a disputed $30,000 in cash were fraudulent under 11 U.S.C. § 548(a)(1)(B) and Mich. Comp. Laws Ann. §§ 566.31 et seq, respectively. Defendant denies these allegations.

The following constitutes the Court's findings of fact and conclusions of law pursuant to Fed. R. Civ. P. 52, made applicable by Fed. R. Bankr. P. 7052. For the reasons set forth below, the Court finds that the transfer of the Debtor's interest in the marital home did not constitute a fraudulent transfer within the meaning of 11 U.S.C. § 548(a)(1)(B) and therefore may not be avoided. However, the Court finds that no value was given in exchange for the monetary transfer of $21,900 and consequently Trustee met his burden under M.C.L. § 566.35(1). This transfer may be avoided subject to Trustee establishing the elements of 11 U.S.C. § 544.¹

II. JURISDICTION AND RELATED ISSUES

This Court has jurisdiction pursuant to 28 U.S.C. § 1334 and 28 U.S.C. § 157. This adversary proceeding seeks to avoid prepetition transfers as fraudulent and therefore is a core proceeding as defined in 28 U.S.C. § 157(b)(2)(H).

On December 1, 2017, Trustee filed a motion for summary judgment seeking to avoid the above referenced transfers. On February 1, 2018, the Court held a hearing on Trustee's motion and denied Trustee's requested relief finding that, based on the facts of this case and the evidence presented at that time, the determination of reasonably equivalent value was inappropriate for disposition under Fed. R. Civ. P. 56. Neither party presented any argument or authority, then or now for purposes of trial, regarding the parties' interests in the property at the time of the relevant transfer and the mutual obligations of spouses pursuant to Michigan law. As will be discussed, the parties' legal rights change upon the filing of a divorce action; as a result, the Court reconsiders its prior finding that the issue of "reasonably equivalent value" as to the pre-divorce monetary transfer was an issue of fact and proceeds with the following factual and legal analysis.

The parties have submitted a Stipulation of Facts and Admissibility of Exhibits for Trial, wherein the parties stipulated to the authenticity and admission of all exhibits listed in the Final Pre–Trial Order as well as the establishment of certain prima facie elements of both claims.² (ECF No. 61). With regard to the fraudulent transfer claim under § 548, the parties stipulate that Trustee established (1) the transfer was made while Debtor was insolvent or rendered insolvent as a result of the transfer; and (2) the transfer was made within two years of Debtor's bankruptcy. For the fraudulent transfer claim under M.C.L. § 566.35(1), the parties stipulate that Trustee established (1) there was a Creditor whose claim arose before the transfer was made; (2) the transfer was made while Debtor was insolvent or rendered insolvent as a result of the transfer; and (3) the transfer was made within six years of Debtor's Bankruptcy petition. Accordingly, the only issue before the Court is whether Debtor received reasonably equivalent value for the transfers.

III. ANALYSIS

a. Findings of Fact

The facts of this case are largely undisputed. Defendant, 54, and Debtor, 56, were married for almost 28 years. They have three children together, ages 36, 34 and 30. During the marriage, Debtor was the primary breadwinner. Defendant took care of the home and raised their three children. Defendant occasionally worked part time when the children went to college. Her income ranged from $6,000–$8,000 per year with a maximum of $10,000.

Debtor worked at a local furniture store, Moss & Associates, Inc. ("M&A") for several decades before purchasing the business. Soon after taking over the business, it began experiencing financial losses. Debtor's average income in the beginning of his employment with M&A was around $700 per week, it peaked at $2,400 per week, and went down to about $1,000 per week over the last few years before the business closed. The parties' joint tax returns show Debtor's income in 2012 at $69,606; 2013 at $60,409; and 2014 at $4,431. In 2016 his income was $65,000 and about $70,000 in 2017.³

Debtor maintained a retirement account through Edward Jones as a benefit of his employment with M&A.⁴ The retirement account was in his name only, Defendant was a named beneficiary. Debtor funded the account solely through earned bonuses. The retirement account was intended to provide for both spouses during their retirement years. With respect to the account balance, the account was at its highest before 2011 at around $260,000. However, the Debtor depleted the account in an attempt to save the failing business. Defendant was unaware that Debtor had been withdrawing money from the retirement account. As of the date of the judgment of divorce, the account had a value of $20.88.

Debtor had an extramarital affair and left the marital home in late 2013. The parties agreed that Debtor would pay Defendant $30,000 as support from Debtor's retirement account. On May 22, 2014, Debtor took out the remaining $98,100 from his retirement account. Sometime in July of 2014, but before the filing of the divorce, Debtor gave Defendant around $30,000 in cash. The exact timing and amount of this transfer is unclear. However, the parties agree that the Debtor took back $2,500 of this money to pay his divorce attorney. Additionally, $5,600 was used to pay the balance of the credit card Debtor opened in Defendant's name without her knowledge.

Debtor testified:

We paid some personal debt, which was basically brought on the household from my business, and the moneys that were left I left with her. She was not working, and I was not working, and I left. I believe it was around 50,000 that was left, but I could be off by 5,000, 10,000. Like I said earlier, this whole timeframe for me is very, very difficult.

(Trustee's Exhibit 13, Debtor Dep. 44). Debtor later clarified that of the $50,000, $20,000 was used to pay the Bank of America credit card, "I believe the Bank of America credit card was like 17,000, but that was from [M&A]. Probably—probably around 20." (Debtor Dep. 48).

Debtor gave the Defendant this money because he depleted substantially all the retirement funds without her knowledge on a failed business and because his extramarital affair caused the breakdown of the marriage. Debtor testified, "I just stated that I felt obligated because I had spent at least that much in trying to keep the business [M&A] alive, and she deserved that.... She raised three beautiful children that are all graduates of Wayne State University." (Debtor Dep. 50).

Debtor gave Defendant the money in cash over a period of several weeks. (Debtor Dep. 48). Debtor testified that he would deposit the checks from Edward Jones into his individual Flagstar account, in which Defendant held no interest. (Debtor Dep. 47). Defendant was of the opinion that she received the money all at once. Defendant did not give anything to the Debtor when she received this money.

Defendant was specifically questioned whether she paid any consideration or anything of value to Debtor in exchange for the $30,000 transfer, Defendant answered "no." (ECF No. 74, Trial Transcript, 33). Furthermore, Trustee asked Defendant "Did you ever have any agreement verbally or in writing that the $30,000 transfer was going to be in lieu of spousal support in the divorce proceeding?", to which Defendant again answered "no." (Trial Tr. 33).

The Court finds that the parties agreed that Debtor would give Defendant some money as support since she was not working. The Court further concludes that the record does not evidence an agreement to waive spousal support in exchange for this money. With regard to the actual amount transferred, the Court finds that of the $50,000 originally in Defendant's possession—$20,000 was used to pay the Bank of America credit card, $5,600 was used to pay off the credit card Debtor opened in Defendant's name, and $2,500 was taken by Debtor to pay his divorce attorney—leaving $21,900.⁵

In April 2014, Debtor was forced to close his business as a result of a wrist injury that placed him out of work, leaving him to collect unemployment benefits from April 2014 through November 2014. Debtor returned to work in November 2014 as a truck driver working for Sigma a division of Sysco.

Debtor filed for divorce on July 10, 2014. The Wayne County Circuit Court entered a consent judgment of divorce on January 26, 2015, wherein the parties agreed Debtor would transfer his interest in the marital home in return for a waiver of spousal support. Debtor was represented by an attorney. Defendant did not have any legal representation.

The Court finds that Defendant did not know her legal rights at the time of the divorce, or now. Defendant, who has an eleventh grade education, did not understand the meaning of consideration and her responses at a glance appear inconsistent. However, after...