Olsen v. Ruvalcaba (In re Ruvalcaba)

In re: Jose Juan Ruvalcaba, Debtor.

Joseph D. Olsen, Trustee for the Estate of Jose Ruvalcaba, Plaintiff, v. Sara Ruvalcaba, Defendant.

Bankruptcy No. 16-82572

Adversary No. 16-96071

UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF ILLINOIS WESTERN DIVISION

Entered: May 18, 2018

May 17, 2018

Chapter 7

Judge Lynch

MEMORANDUM OPINION

The Plaintiff Chapter 7 Trustee seeks through his adversary proceeding against the Debtor's non-filing spouse, Sara Ruvalcaba,¹ to avoid the pre-petition transfer of the Debtor's ownership interest in certain commercial real estate. The Debtor, Jose Juan Ruvalcaba, purportedly effected this transfer by a quit claim deed in the real estate located at 730 East Lincoln Highway, DeKalb, Illinois (the "DeKalb Property") signed by the Debtor on November 16, 2012, and recorded on January 7, 2013.

The trustee's complaint originally asserted five counts, all seeking to avoid or recover on the same transfer of the DeKalb Property. Pursuant to the Bankruptcy Code's grant to the trustee of certain powers of avoidance under applicable state law, 11 U.S.C. § 544(b), Counts I, II and III seek to avoid the transfer under, respectively, sections 5(a)(1), 5(a)(2) and 6(a) of the Uniform Fraudulent Transfer Act as adoptedin Illinois. 740 Ill. Comp. Stat. 160/5(a)(1), 160/5(a)(2) and 160/6(a). Count V seeks recovery of either the property itself or a money judgment for the value of the property pursuant to Section 550(a) of the Bankruptcy Code. The court previously dismissed Count IV, which sought avoidance under 740 Ill. Comp. Stat. 160/6(b), on March 8, 2017, on the Defendant's motion to dismiss.

Before the court are the parties' cross-motions for summary judgment, which have been fully briefed and argued. (ECF Nos. 20, 24.) For the reasons set forth below, summary judgment will be entered in favor of the trustee on Counts I, II, III, and V of the Adversary Complaint and the Defendant's motion for summary judgment will be denied.

JURISDICTION

There is no dispute that both the Debtor and the Defendant are and were at all relevant times residents of Illinois and that the property at issue is in this state. The trustee seeks to recover this property for the estate through the avoidance powers granted by Section 544(b) of the Bankruptcy Code. These matters are "proceedings to determine, avoid, or recover fraudulent conveyances" and therefore designated as "core proceeding[s]" by 28 U.S.C. § 157(b)(2)(H). As such, each of Counts I through V is a matter which arises under title 11. In addition, the Fed. R. Bankr. P. 7056 motions relating to these claims are also core proceedings. 28 U.S.C. § 157(b)(1) and (b)(2).

These related matters are therefore within the "original but not exclusive" jurisdiction of the federal district courts pursuant to 28 U.S.C. § 1334(b). Pursuantto 28 U.S.C. § 157(a) the District Court for the Northern District of Illinois has referred all of its bankruptcy cases to the Bankruptcy Court for the Northern District of Illinois. N.D. Ill. Internal Operating Procedure 15(a). Additionally, both parties have formally consented to entry of final judgment by this court in these matters. (See Trustee's Statement of Undisputed Material Facts ("Pl. LR 7056-1") ECF No. 22, ¶ 3; Def. LR 7056-2 Resp., ECF No. 23, ¶¶ 2-4.)

Accordingly, final judgment is within the scope of this court's jurisdiction and constitutional authority.

FINDINGS OF FACT

From its review of the complaint, answer and motions, the parties' respective statements of undisputed facts and responses, and supplemental statements of fact, the court finds the following facts to be undisputed.

Sara and Jose Ruvalcaba are wife and husband married for more than twenty years and during all times relevant to this action. (Def. LR 7056-2 Resp., ¶¶ 9-10.) The Debtor purchased the DeKalb Property for $125,000 on or about September 1, 2005. (Id. ¶ 15.) He financed the purchase in part by borrowing $75,000 from a bank to whom he granted a mortgage in the property. (Id. ¶¶ 16-17.) Sometime prior to November 2012, the mortgage was paid off in full and as of that time the Debtor was the sole owner of the DeKalb Property. (Id. ¶¶ 18-19, 22.)

On November 16, 2012, Jose executed a quit claim deed transferring the DeKalb Property to Sara. (Id. ¶ 20.) The quit claim deed was recorded with the DeKalb County Recorder's Office on January 7, 2013. (Id. ¶ 21.) No physical assetsor cash were exchanged in consideration for the transfer.²

Prior to the transfer, the Debtor had operated his used car dealership commonly known as DeKalb Auto Sales out of the DeKalb Property. (Def. LR 7056-2 Resp., ¶ 11.) He continued to operate the business out of the property for approximately a year after the transfer. (Id. ¶¶ 11, 25.) While the Defendant alleges that she rented the property to Jose during this time, she admits that there was no written lease agreement and that the Debtor never actually paid any rent. (ECF No. 22, Ex. C, hereinafter "Sara Depo." 119:11, 16.)

At the time of the transfer, the DeKalb Property was the Debtor's most valuable asset. (Def. LR 7056-2 Resp. ¶ 41.) On May 1, 2015, the Defendant entered into a lease agreement with an individual named Miguel Fernandez to lease the DeKalb Property to him for $13,200 per year. (Id. ¶ 44.) On June 25, 2015, Sara listed the DeKalb Property for sale with a list price of $129,000. (Id. ¶ 43.)

The Debtor was not making the required monthly payments for and in connection with the floor plan financing for his used car business at the time of the transfer. (Def. LR 7056-2 Resp.¶¶ 36 - 38.) On or about December 28, 2012, less than two months after the transfer, the floor plan financer repossessed the vehicles constituting its collateral. (Id.) Earlier in the year, on February 16, 2012, an order of possession was entered in a foreclosure proceeding commenced in 2010 on a residential property in DeKalb that the Debtor owned and rented. As of the time of the DeKalb Property transfer, Jose and Sara were having difficulty making homemortgage payments to Chase Bank and stopped making such payments in November 2012. (Id., ¶¶ 86-87.) Jose advised Sara at the time of the DeKalb Property transfer "that he was going to file for bankruptcy." (Id. ¶ 90.)

The Debtor filed a petition under Chapter 13 of the Bankruptcy Code on October 22, 2013. (Id. ¶ 49.) In the schedules filed with the petition, Jose listed the transfer of the DeKalb Property, describing it as "Quit Claim Deed: 730 E Lincoln Highway, DeKalb, IL 60115 (location of Debtor's business DeKalb Auto Sales); Value received $0.00; approximate value of property is $30,000; Prepared 11/16/12; Recorded 01/07/2013." (Id. ¶ 31.³) The 2013 Chapter 13 case was dismissed on January 9, 2015, prior to confirmation of any plan.⁴

The Debtor filed his voluntary petition in this Chapter 7 case on October 31, 2016. The trustee filed his adversary complaint against Sara on December 28, 2016, the same day he filed an initial report of assets in the bankruptcy case. Prior to the claims bar date of March 31, 2017, creditors (not including the Defendant) had filed thirteen proofs of claim, asserting unsecured claims totaling $79,589.38. Among these were proofs of claim for Automotive Finance Corporation ("AFC") of $42,446.12 (Claim 10); Chase Bank USA of $3,953.50 (Claim 13); Von Maur of $216.36 (Claim 7); Discover Bank Discover Products, Inc. of $11,729.34 (Claim 4); Discover Bank Discover Products, Inc. of $9,500.87 (Claim 5); and Discover Bank Discover Products, Inc. of $5,102.63 (Claim 6). (Def. LR 7056-2 Resp., ¶ 24.)

The Defendant filed a proof of claim in this case on March 31, 2017. It asserted an unsecured nonpriority claim of $138,396 for what she describes as "Business Loans." She did not attach any written agreements to support the alleged claim, instead attaching only copies of checks, bank statements and credit card statements, together with a summary of what she alleges to be payments made by her to or on behalf of the Debtor or his business between February 2002 and September 2016. There is and has never been any documentation that memorializes or states the terms of the alleged "business loans" between Jose and Sara. (Id. ¶ 64.) The summary attached to Sara's proof of claim does not include a credit in any amount for and in connection with the transfer of the DeKalb Property to her. (Id. ¶ 63.) The summary alleges without documentary support a $20,000 cash payment to DeKalb Auto Sales on February 1, 2002. The summary further alleges that checks totaling $44,231 were drawn on the Debtor and Defendant's joint checking account between 2002 and the date of the DeKalb Property transfer, that $17,198 in cash was withdrawn and $47,000 in funds were transferred put of the account during the same period. Attached to the summary are copies of checks and notices of transfers. The summary also alleges that charges totaling $8,000 were made on the Defendant's credit card between 2010 and October 2012. Credit card statements are attached to the summary. The summary also identifies further debits totaling $23,567.72 and credits totaling $21,600 between July 2013 and March 2016, labeling the credits as "rent payment."

From 2003 through 2013, the Defendant was employed as a cook at anApplebee's restaurant. During this time her average annual income ranged between $27,000 - $28,000. (Def. LR 7056-2 Resp. ¶¶ 71-76.)

DISCUSSION

Summary Judgment.

The court shall grant a motion for summary judgment where "the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a), as incorporated by Fed. R. Bankr. P. 7056. "The party that bears the burden of proof for an issue at trial must 'cite the facts which it believes [would] satisf[y]' that burden and 'demonstrate why the record is so one-sided as to rule out the prospect of a finding in favor of the non-movant ....'" Bunch v. United States, 880 F.3d 938, 941 (7th...