First Bank of Dalton v. Manton Family P'ship, LLLP (In re Manton)
First Bank of Dalton v. Manton Family P'ship, LLLP (In re Manton)
Opinion of the Court
Before the Court are (1) the Chapter 7 Trustee ("Trustee") in Bankruptcy for Linda P. Manton's Motion to Intervene Together with Supporting Memorandum of Law , filed on August 7, 2017 (the "Motion to Intervene"), (2) the Motion of First Bank of Dalton ("Plaintiff") to Remand to the Superior Court of Catoosa County Georgia and/or for Abstention , filed on August 19, 2017 (and accompanying brief) (the "Motion to Remand") and (3) the Defendants' Joinder of Chapter 7 Trustee's Motion to Intervene and Defendants' Motion: (A) to Substitute Chapter 7 Trustee as Plaintiff as Real Party in Interest, (B) to Dismiss Claims by First Bank of Dalton, and (C) to Set Aside First Bank of Dalton's Default Judgment as Void Ab Initio , filed on September 5, 2017 (and accompanying brief) (the "Joinder Motion"). (Docket Nos. 3, 9, 10, 12, & 13). The Defendants also filed a response objecting to the Motion to Remand on September 5, 2017 and Plaintiff filed a response objecting to the Joinder Motion on September 19, 2017 (Docket Nos. 11 & 14).
BACKGROUND
Plaintiff alleges that on or about November 30, 2011, Linda Proctor Manton ("Debtor") transferred three parcels of real property to the Manton Family Partnership, LLP ("MFP") for no consideration. (Docket No. 1, Ex. A at *3, ¶ 12). On or about January 30 or 31, 2012, the couple transferred $15,478.04 from a joint bank account to MFP for no consideration. (Docket No. 1, Ex. A at *4, ¶ 13, 16). MFP is owned by the couple as limited partners, with TLM Diversified, LLC ("TLM") as the general partner. (Docket No. 1, Ex. A at *2, ¶ 6). TLM is solely owned by the couple, with each owning a 50% membership interest. (Docket No. 1, Ex. A at *2, ¶ 6). At the time of the transfers, the couple was indebted to several creditors including Plaintiff. (Docket No. 1, Ex. A at *2, ¶ 8).
In January 2013, the couple defaulted on Plaintiff's loan. Plaintiff foreclosed on the related secured property and obtained a deficiency judgment against the couple for approximately $750,000. (Docket No. 1, Ex. A at *2, ¶ 8-9). Unable to satisfy the deficiency judgment, on November 30, 2015, Plaintiff filed a complaint (the "Complaint") including a count for fraudulent conveyance,
On March 13, 2017, before the Superior Court Judgment was entered, Debtor filed for relief under Chapter 7. (Case No. 17-40595, Doc.1). Debtor then received her discharge on July 19, 2017. (Case No. 17-40595, Doc. 35). On August 3, 2017, Debtor filed a Notice of Removal ("Notice") pursuant to
On October 30, 2017, the Court held a telephonic status conference regarding the various motions. The parties have failed to reach a unanimous consensus regarding the disposition of the pending motions. Trustee and Defendants filed joint status report and requested the Court to grant Trustee's Motion to Intervene, Defendants' Motion for Trustee Intervention as Plaintiff, and to deny Plaintiff's Motion to Remand. (Doc. 16).
Pursuant to that status conference, and the reports submitted by the parties following that status conference, and as will be set forth below, the Court concludes that (1) Trustee is entitled to intervene, (2) Trustee shall be substituted as plaintiff as the real party in interest, because he has the exclusive standing to bring a fraudulent transfer claim, and (3) the present proceeding shall not be remanded to the state court, because it was properly removed to the Court, Plaintiff failed to establish the grounds for mandatory abstention, and the Court declines to remand under permissive abstention, and denies Plaintiff's request for equitable remand. All other relief being sought in the Joinder Motion is not addressed at this time.
ANALYSIS
I. Trustee's Motion to Intervene
The Plaintiff's claims at issue in this proceeding are to avoid what it alleges *635are fraudulent transfers of the three parcels of real property and funds from the joint bank account of the Debtor and her non-debtor husband to MFP for no consideration. Plaintiff brought these claims in the Superior Court pursuant to nonbankruptcy law, under Georgia's Uniform Voidable Transactions Act, O.C.G.A. 18-2-70, et seq. , which allows a creditor such as Plaintiff to bring such an action. Two well-established principles of bankruptcy law, however, are that fraudulent transfer actions become property of the estate, and that only the trustee has the power to prosecute a fraudulent transfer action.
Property of the estate includes any interest that a trustee recovers under
Because any property recovered pursuant to a fraudulent transfer action is property of the estate, the fraudulent transfer action itself is a claim of the estate. See Highland Capital Mgmt. LP v. Chesapeake Energy Corp. (In re Seven Seas Petroleum, Inc.) ,
Only the chapter 7 trustee
Trustee and Defendants rely on FRBP Rule 7024, arguing that Trustee has established his right to intervene under both mandatory intervention and permissive intervention. Rule 7024(a)(1) provides that the Court must allow a party to intervene if that party "is given an unconditional right to intervene by federal statute[.]" Here, § 544 is a federal statute that clearly gives Trustee an unconditional right to intervene. Because Trustee has satisfied the requirements for mandatory intervention, the Court need not address permissive intervention.
Additionally, pursuant to FRBP Rule 6009, "[w]ith or without court approval, the trustee or debtor in possession may prosecute or may enter an appearance and defend any pending action or proceeding by *636or against the debtor, or commence and prosecute any action or proceeding in behalf of the estate before any tribunal." FED. R. BANKR. P. 6009. As set forth above, a fraudulent transfer action is a proceeding in behalf of the estate. The right to intervene in Rule 6009 is absolute and not subject to court approval.
II. Debtor's Motion to Substitute Trustee as the Real Party in Interest as Plaintiff
Rule 17 of the Federal Rules of Civil Procedure, made applicable to this proceeding by FRBP Rule 7017, requires that "an action must be prosecuted in the name of the real party in interest." FED. R. CIV. P. (17). A party authorized by statute to prosecute an action is a real party in interest. FED. R. CIV. P. (17)(a)(1)(G). As the case law cited above supports, §§ 544 and 548 provide exclusive standing to a trustee to prosecute a fraudulent conveyance action unless the trustee has abandoned that claim or the automatic stay has been lifted. In re Tessmer ,
Because only Trustee can bring the avoidable transfer under federal statute, Trustee is a real party in interest in such claim. The Court finds that Trustee shall be substituted as the plaintiff in the present proceeding.
III. Plaintiff's Motion to Remand
Having decided that Trustee may intervene and be substituted as plaintiff, and because the Fraudulent Conveyance Action is a core proceeding as to which the Court has jurisdiction, the Court will deny the Motion to Remand. Plaintiff asserts that the Fraudulent Conveyance Action must be remanded to the Superior Court because: (1) Debtor did not have standing to remove the Fraudulent Conveyance Action; (2) even if Debtor had standing, only the claims against Debtor were removed, but not the claims against the non-debtor Defendants; and (3) the Court should abstain from hearing this case.
A. Standing to Remove
Pursuant to the plain language of
The only question that remains is whether there is jurisdiction under
Plaintiff asserts that Debtor may not remove the Fraudulent Conveyance Action to the Court because Debtor is not allowed to bring an avoidable transfer claim in the bankruptcy proceeding; only Trustee has the exclusive right to bring such claim. Motion to Remand Brief at *6-7. It is true that a Chapter 7 trustee has the exclusive right to bring such cause of action, but the language of
B. Timeliness of Removal
Plaintiff then asserts that Debtor failed to timely remove the Fraudulent Conveyance Action as prescribed in FRBP Rule 9027(a)(2), because, ultimately, the Defendants other than Debtor are not debtors in this or any other case, and therefore the actions against them were not stayed by § 362(a).
When an action is pending in the state court and a bankruptcy petition is filed, Rule 9027(a)(2) governs whether a removal is timely filed. Rule 9027(a)(2) provides:
If the claim or cause of action in a civil action is pending when a case under the Code is commenced, a notice of removal may be filed only within the longest of (A) 90 days after the order for relief in the case under the Code, (B) 30 days after entry of an order terminating a stay, if the claim or cause of action in a civil action has been stayed under § 362 of the Code, or (C) 30 days after a trustee qualifies in a chapter 11 reorganization case but not later than 180 days after the order for relief.
FED. R. BANKR. P. 9027(a)(2). Here, the 90-day removal period under (A) has lapsed. Debtor filed the Chapter 7 petition on March 13, 2017. Ninety days from the petition date was June 12, 2017. The Notice was filed on August 3, 2017, and therefore not within the 90 days prescribed by Rule 9027(a)(2)(A). The removal period under (C) is clearly inapplicable too, because Debtor's case is pending under Chapter 7. Therefore, Debtor must rely on the time period contained in (B).
For the Court to find that the removal was timely pursuant to Rule 9027(a)(2)(B), the Court must find the following: (1) the Fraudulent Conveyance Action was stayed under § 362 of the Bankruptcy Code, and (2) the Fraudulent Conveyance Action was *638removed within 30 days after the termination of such stay, if it has been terminated. FED. R. BANKR. P. 9027(a)(2)(B). Plaintiff argues that the actions against the non-debtor Defendants was never stayed, and seems to therefore argue that either Rule 9027(a)(2)(B) is inapplicable as to those Defendants, just as Rule 9027(a)(2)(C) is inapplicable, or that Debtor only had thirty days from the date she filed her bankruptcy case. Either way, Plaintiff asserts that the removal was not timely as to the Fraudulent Conveyance Action as against those Defendants.
1. The Fraudulent Conveyance Action was Stayed Against All Parties
Section 362 of the Bankruptcy Code precludes creditors from "the commencement or continuation ... of a judicial ... proceeding against the debtor" and from "any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate."
Plaintiff asserts that the legal theory underlying the Fraudulent Conveyance Action against the non-debtor Defendants is that they were the recipients of fraudulently transferred properties, the transferees, and therefore Plaintiff may recover from them the property that was fraudulently transferred (or the equivalent value thereof). That very property, however, the property fraudulently transferred (or the equivalent value thereof) is the property that becomes property of the estate under § 541(a)(3), because § 550 explicitly provides that a trustee can recover transferred property, from the initial or even subsequent transferees .
The first case cited by Plaintiff is In re Cole , in which the creditor was seeking to collect upon a garnishee's independent liability for failing to comply with the applicable garnishment law, from the garnishee's independent assets. Southwest Airlines Co. v. Tidewater Fin. Co. (In re Cole) ,
Here, the non-Debtor Defendants do not have a separate guarantee or similar agreement providing direct liability between them and Plaintiff. Neither is Plaintiff seeking to recover from independent assets, but rather, Plaintiff is seeking to recover the actual transferred property (or, effectively, the value that the non-Debtor defendants gained from it). Therefore, regardless of who the defendants are, the claims at issue in this case are attempts to collect on account of prepetition debts owed by the Debtor from property of the estate, and therefore all the claims at issue in this Fraudulent Conveyance Action against all the Defendants were stayed by the automatic stay of § 362(a).
This also includes the claim(s) against Defendant Thomas L. Manton on account of the approximately $15,000 transferred out of his joint account with Debtor. Section 541 of the Code governs what constitutes property of the estate in a bankruptcy case and provides that all legal and equitable interests of the debtor become property of the estate, including all interests in community property.
2. The Removal was Timely
Having determined that the Fraudulent Conveyance Action that is the subject of this proceeding is subject to § 362, the Court concludes that the removal was timely because either the automatic stay has not terminated as to the Fraudulent Conveyance Action, or, alternatively, did terminate, but was removed within 30 days of such termination.
An automatic stay remains in effect as to the estate property until it ceases to be property of the estate.
*640Plaintiff asserts that even if the automatic stay applied to the Fraudulent Conveyance Action and all the parties, the automatic stay terminated upon the entry of the discharge in Debtor's main case, pursuant to § 362(c)(2), not § 362(c)(1). Plaintiff misunderstands the effect of § 362(c)(2). A stay termination under § 362(c)(2) is only as to the debtor (who is then protected by the discharge order) but does not terminate the stay as to property of the estate. Moreover, Debtor removed the Fraudulent Conveyance Action on August 3, 2017, which is within 30 days of July 19, 2017, when the discharge order was entered, and thus is also within the requirements of Rule 9027(a)(2)(B). See Case No. 17-40595, Docket No. 35, Order Discharging Chapter 7 Debtor (July 19, 2017).
Either way, the Court finds that the Fraudulent Conveyance Action was timely removed by Debtor on August 3, 2017, pursuant to Rule 9027(a)(2)(B).
C. Abstention
Plaintiff next asserts that the Court is required, or in its discretion should, abstain from hearing the case because the current proceeding is not a "core" proceeding, and the factors justifying abstention are present. Plaintiff alternatively asserts that the Fraudulent Conveyance Action should be remanded based on equitable grounds.
1. Mandatory Abstention
The Court must abstain from hearing a state law claim if all of the following requirements are met: (1) a motion has been timely filed requesting abstention; (2) the cause of action is essentially one that is premised on state law; (3) the claim is a non-core proceeding; (4) the proceeding could not otherwise have been commenced in federal court absent federal jurisdiction under § 1334(b) ; (5) an action has been commenced in state court; and (6) the action could be adjudicated timely in state court.
Congress set forth a list of actions it considers to be "core proceedings" in
The Eleventh Circuit has embraced the two-step test created by the Fifth Circuit in Wood to determine whether a claim is a core proceeding, consistent with Marathon and Stern , regardless of whether that type of proceeding is included in the list in § 157(b)(2) : first determine if a proceeding addresses a substantive right created by Title 11, and second, if not, determine if the proceeding could only arise in a bankruptcy case.
*641Welt v. MJO Holding Corp. (In re Happy Hocker Pawn Shop, Inc.) ,
Here, the Fraudulent Conveyance Action is a core proceeding in bankruptcy because (1) fraudulent conveyance is specifically listed as a core proceeding under
Plaintiff further asserts that the Fraudulent Conveyance Action did not qualify as a core proceeding because the Fraudulent Conveyance Action was not initiated by Trustee. A fraudulent transfer claim is a core proceeding in bankruptcy even though such claim was removed to the courts by a debtor, not a trustee. See Ramirez ,
2. Permissive Abstention
Plaintiff argues that the Court may abstain under the permissive abstention provision of
(1) the effect of abstention on the efficient administration of the bankruptcy estate; (2) the extent to which state law issues predominate over bankruptcy issues; (3) the difficulty or unsettled nature of the applicable law; (4) the presence of a related proceeding commenced in state court or other non-bankruptcy court; (5) the basis of bankruptcy jurisdiction, if any, other than28 U.S.C. § 1334 ; (6) the degree of relatedness or remoteness of the proceeding to the main bankruptcy case; (7) the substance rather than form of an asserted 'core' proceeding; (8) the feasibility of severing state law claims from core bankruptcy matters to allow judgments to be entered in state court with enforcement left to the bankruptcy court; (9) the burden of the bankruptcy court's docket; (10) the likelihood that the commencement of the proceeding in bankruptcy court involves forum shopping by one of the parties; (11) the existence of a right to a jury trial; (12) the presence in the proceeding of non-debtor parties; (13) comity; [and] (14) the possibility of prejudice to other parties in the action.
Blackman v. Challenge Fin. Inv'rs Corp. (In re Blackman) , Case No. 16-70629-PMB, Adv. Proc. No. 17-5185-PMB, 2017 Bankr. LEXIS 4127,
The Court finds the factors (1), (2), (5), (6), (7) weigh heavily against abstention. First, abstention would have a substantial effect on the administration of the estate, because this proceeding will recover value for the estate that would otherwise be unrecoverable due to the statute of limitations having expired for Trustee to independently seek recovery of fraudulently transferred property and/or Plaintiff recovering the transferred property for its own benefit and not the greater benefit of Debtor's estate and all her general unsecured creditors. Second, state law regarding fraudulent conveyances does not predominate over bankruptcy issues, because of the similarity between the Bankruptcy Code and Georgia's Uniform Voidable Transactions Act. Third, the Court has jurisdiction over the Fraudulent Conveyance Action pursuant to § 544, in addition to § 1334. Finally, and arguably most importantly, the Fraudulent Conveyance Action is a core proceeding, arising under Title 11, and directly affects property of the estate, which weighs heavily against abstention. Based upon the foregoing analysis, the Court is not persuaded to abstain in this proceeding under the permissive abstention provision of § 1334(c)(1).
3. Equitable Remand
Plaintiff argues that the Court should refrain from hearing this proceeding on equitable grounds, pursuant to
(1) forum non-conveniens; (2) that the entire action of a bifurcated matter should be tried in the same court; (3) that a state court is better able to resolve state law questions; (4) expertise of a particular court; (5) judicial economy; (6) prejudice to the involuntarily removed party; (7) comity; and (8) the lessened possibility of an inconsistent result.
*643Agrowstar, LLC v. Branch Banking & Trust Co. , Case No. 5:14-cv-379 (CAR),
Having reviewed the cases within the Eleventh Circuit in which the court granted equitable remand, the Court did not find that any of those cases involved any core proceedings. Those proceedings that were remanded under § 1452(b) were either arising purely under state law or the court only had "related-to" jurisdiction. See, e.g. , Cook v. Griffin ,
Additionally, courts have held that the bases and analysis for remanding a proceeding on equitable grounds is virtually identical to the analysis of permissive abstention pursuant to § 1334(c)(1). See, e.g. , Flyboy Aviation Props. ,
CONCLUSION
Trustee is entitled to intervene in any pending actions against Debtor. Only Trustee can bring the fraudulent transfer claim in the bankruptcy proceeding; therefore, Trustee is the real party in interest here and shall be substituted as the plaintiff.
The Fraudulent Conveyance Action is properly removed to the Court because Debtor, who is entitled to remove, timely filed the Notice with the Court pursuant to FRBP Rule 9027(a)(2)(B). As the Fraudulent Conveyance Action is a core proceeding under § 157(b) and arises under Title 11, the Court is not required to abstain and remand this case back to the Superior Court, nor will the Court choose to remand this case under permissive abstention or on equitable grounds.
Accordingly, it is
ORDERED that Motion to Intervene is GRANTED ; and it is further
ORDERED that the Joinder Motion is GRANTED only to the extent that it is seeking Trustee to be substituted as plaintiff as the real party in interest; and it is further
ORDERED that the Motion to Remand is DENIED .
The Clerk is directed to serve a copy of this Order upon Plaintiff, counsel for Plaintiff, Defendants, counsel for Defendants, the chapter 7 trustee, and the United States Trustee.
The Complaint includes 5 counts, including fraudulent conveyance, fraud, punitive damages, injunctive relief, and attorneys' fees. The fraud alleged is fraudulent conveyance of property to avoid satisfying Plaintiff's debt, and the other three counts are similarly remedies that are solely based on the fraudulent conveyance claim. Therefore, this really is just a fraudulent conveyance action.
In the status report that Defendants filed jointly with Trustee, the Defendants do not ask the Court to dismiss the First Bank of Dalton nor declare the Superior Court Judgment to be void ab initio at this time, and therefore the Court does not address those claims here, without prejudice to addressing them later. See Joinder Motion at *4 ("Trustee and Defendants request that: (a) the Motion to Intervene and Defendants' Motion for Trustee Intervention as Plaintiff be granted, (b) First Bank of Dalton's Motion to Remand to Superior Court of Catoosa County, Georgia and/or Abstention be denied, (c) that the Chapter 7 Trustee be authorized to intervene in the Fraudulent Conveyance Action, and (d) that the Chapter 7 Trustee be substituted for Plaintiff as the real party in interest with respect to all claims based upon Debtor's transfers.").
Or other designated representative of the estate, including, e.g. , a chapter 13 trustee, or a chapter 11 debtor-in-possession.
But see Whitney Nat'l Bank v. Lakewood Inv'rs , Case No. 11-0179-WS-B,
Reference
- Full Case Name
- IN RE: Linda Proctor MANTON, Debtor. First Bank of Dalton v. Manton Family Partnership, LLLP, TLM Diversified, LLC, Linda P. Manton, a/k/a Linda Smith, and Thomas L. Manton
- Cited By
- 10 cases
- Status
- Published