United States Bankruptcy Appellate Panel
FOR THE EIGHTH CIRCUIT
No. 03-6016 WM
In re: *
*
Mary Jo Hixon, *
*
Debtor. *
*
Fred Charles Moon, Chapter 7 Trustee, * Appeal from the United States
* Bankruptcy Court for the
Plaintiff - Appellee, * Western District of Missouri
*
v. *
*
Mark Anderson, *
*
Defendant -Appellant, *
*
Mary Jo Hixon, *
*
Defendant. *
Submitted: July 14, 2003
Filed: August 1, 2003
Before KRESSEL, Chief Judge, SCHERMER and DREHER, Bankruptcy Judges
SCHERMER, Bankruptcy Judge
Mark Anderson (“Anderson”) appeals the bankruptcy court1 order and
judgment setting aside the purchase by the Debtor Mary Jo Hixon (“Debtor”) of
certain annuities for Anderson as a fraudulent conveyance pursuant to 11 U.S.C.
§ 548. We have jurisdiction over this appeal. See 28 U.S.C. § 158(b). For the
reasons set forth below, we affirm.
ISSUES
The first issue on appeal is whether the bankruptcy court correctly determined
that the Debtor’s purchase of certain annuities constituted a fraudulent transfer to
Anderson pursuant to 11 U.S.C. § 548. We conclude that the bankruptcy court did
not err when it determined that the purchase of the annuities was an avoidable
fraudulent transfer. A second issue on appeal is whether the merits of Anderson’s
request for the imposition of a constructive trust should have been addressed by the
bankruptcy court and should be included in this appeal because Anderson did not
properly raise the issue as an affirmative defense. We conclude that the bankruptcy
court properly exercised its discretion to address the merits of the constructive trust
arguments in its denial of Anderson’s motion to alter or amend or for a new trial.
BACKGROUND
Mark Anderson is the Debtor’s nephew. In 1993, Anderson was convicted
of drug offenses and sentenced to prison. At the time of Anderson’s incarceration,
he owed past-due child support which his ex-wife was attempting to collect. A
sheriff’s sale was pending with respect to certain real estate owned by Anderson.
Anderson hired Attorney Larry K. Bratvold to assist with the child support
collection issues and to arrange a vehicle pursuant to which the Debtor could
1
The Honorable Arthur B. Federman, Chief Judge, United States Bankruptcy
Court for the Western District of Missouri.
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handle Anderson’s business affairs while Anderson was incarcerated. Attorney
Bratvold drafted the Mark Anderson Revocable Trust (“Anderson Trust”) into
which certain of Anderson’s assets were transferred, including certain real
property located at 415, 417, and 419 Booneville, Springfield, Missouri
(“Booneville Property”) which was transferred by Anderson into the Anderson
Trust by deed dated September 12, 1993. Anderson and the Debtor were co-
trustees under the Anderson Trust and each had authority to act independently of
the other. The Anderson Trust was intended to serve two purposes: to remove
Anderson’s assets from the reach of his creditors and to enable the Debtor to
exercise complete control over Anderson’s business affairs. Anderson also
executed a power of attorney in favor of the Debtor granting her full authority over
his financial affairs.
In 1997, the Debtor established the Mary Jo Hixon Revocable Trust (“Hixon
Trust”). The Hixon Trust was drafted by Attorney Bratvoldt. The intent was to
give the Debtor complete freedom to transact business with regard to Anderson’s
property without the fear of imposition of levy or lien on the property by
Anderson’s creditors or the possibility of criminal forfeiture. The Debtor was the
trustee of the Hixon Trust. In the Family Identification portion of the trust the
Debtor identified her children, Anna Sharp and Howard Sharp, and indicated that
the trust was made for the benefit of Anderson and his descendants only and that
she intended to create an additional trust for the benefit of her two children.
Notwithstanding the recognition of Anderson in the Family Identification
portion of the Hixon Trust, all substantive provisions of the trust treat the Debtor
as the lifetime beneficiary. The trustee is authorized to “hold and administer [trust
property] for [the Debtor’s] benefit.” (Hixon Trust, Article 3, Section 1.)2 During
2
The Hixon Trust was introduced at trial as Trustee’s Exhibit B and is
included as Exhibit 1 in the Appellee’s Appendix of Exhibits.
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the Debtor’s life, the trust property and income are to be used as the Debtor directs
and the income is to be distributed to the Debtor at least yearly. (Hixon Trust,
Article 4, Section 1(a).) The Debtor has the absolute right to add or remove trust
property. (Hixon Trust, Article 4, Section 1(b).) The Debtor has the absolute right
to amend or revoke the trust. (Hixon Trust, Article 4, Section 1(c).) If the Debtor
becomes incapacitated, the trustee is directed to provide for the Debtor and her
obligations during such period of incapacity. (Hixon Trust, Article 4, Section 2.)
The trustee is directed to deliver to the Debtor any and all annuity contracts which
are owned by or deposited in the trust. (Hixon Trust, Article 5, Section 1(b).) The
Trustee is authorized to pay the Debtor’s expenses, debts, and taxes upon the
Debtor’s death. (Hixon Trust, Article 6, Section 1.) Only after the Debtor’s death
does Anderson become more than a residual beneficiary, at which time the balance
of the trust not previously distributed is to be held and administered for
Anderson’s benefit. (Hixon Trust, Article 8, Section 1.)
The Debtor transferred the Booneville Property from the Anderson Trust
into the Hixon Trust by deed dated April 21, 1997. Anderson was aware of the
creation of the Hixon Trust as a vehicle to prevent his ex-wife from attaching
property. Anderson consented to the transfer of the Booneville Property into the
Hixon Trust. Anderson later executed a deed transferring other property from his
name into the Hixon Trust.
On November 28, 1997, the Debtor represented on a credit application
submitted to Polk County Bank that she was the owner of the Booneville Property
which was titled in the Hixon Trust.
On December 14, 1998, the Hixon Trust sold the Booneville Property to
Danny and Teresa Hicks for $65,000. Mr. and Mrs. Hicks paid $5,000 and
executed a promissory note in the amount of $60,000 payable to the Hixon Trust.
Mr. and Mrs. Hicks executed a deed of trust on the Booneville Property in favor of
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the Hixon Trust to secure repayment of the note. The Debtor listed the promissory
note as her personal asset on her financial statement dated December 31, 1998.
On August 21, 2002, Mr. and Mrs. Hicks refinanced the debt on the
Booneville Property and paid off the promissory note to the Hixon Trust in an
amount in excess of $40,000. The Debtor used the proceeds of the promissory
note to purchase four annuities in the amount of $10,000 each with Anderson
listed as the owner of each annuity and the Debtor listed as the annuitant on each
annuity. The Debtor was insolvent on the date she purchased the annuities.
On November 29, 2001, the Debtor filed a petition for relief under
Chapter 7 of the Bankruptcy Code. Fred Charles Moon (“Trustee”) was appointed
trustee of the Debtor’s bankruptcy estate. The Trustee initiated an adversary
proceeding to avoid the Debtor’s purchase of the annuities in Anderson’s name as
a fraudulent conveyance pursuant to Section 548 of the Bankruptcy Code. After
trial, the bankruptcy court determined that the purchase of the annuities in
Anderson’s name constituted an avoidable fraudulent transfer and entered
judgment in favor of the Trustee and against Anderson in the amount of $40,000.
Anderson filed a motion to alter or amend or for a new trial which the bankruptcy
court denied. Anderson filed this appeal.
STANDARD OF REVIEW
We review the bankruptcy court’s findings of fact for clear error and its
conclusions of law de novo. Fed. R. Bankr. P. 8013; Meeks v. Red River Entm’t of
Shreveport, P’ship (In re Armstrong), 285 F.3d 1092, 1096 (8th Cir. 2002). We
review the bankruptcy court’s denial of the motion to alter or amend or for a new
trial for an abuse of discretion. Kelly v. Armstrong, 206 F.3d 794, 798 (8th Cir.
2000).
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DISCUSSION
A. The Court Did Not Err in Finding that the Promissory Note and its
Proceeds Were Property of the Debtor at the Time the Debtor Used
the Proceeds to Purchase the Annuities.
The bankruptcy court found that the Debtor had complete control over all
assets in the Hixon Trust. She could use the trust assets for herself. Accordingly,
the assets of the Hixon Trust including the promissory note executed in connection
with the sale of the Booneville Property and its proceeds were property of the
Debtor in August of 2002 when the Debtor used such proceeds to purchase the
four annuities. The evidence supports this finding. Anderson did not give any
consideration to the Debtor in August of 2002 when she purchased the annuities.
The transfer was therefore for less than a reasonably equivalent value. The Debtor
was insolvent at the time. Therefore the purchase of the annuities in Anderson’s
name was a fraudulent transfer of the Debtor’s property pursuant to Bankruptcy
Code Section 548(a)(1)(B) which the Trustee was entitled to avoid.
Anderson contends that the Booneville Property was his property at the time
it was sold and that the sale proceeds which were used to purchase the annuities
were likewise his. Anderson asserts that the Debtor was a fiduciary for Anderson
and that any interest she had in the property was limited to a legal interest which
was subject to her fiduciary duties in favor of the equitable owner Anderson. To
the extent the Debtor had a beneficial interest in the assets of the Hixon Trust,
Anderson argues that the Debtor’s transfer of the Booneville Property from the
Anderson Trust to the Hixon Trust constituted a breach of her fiduciary duty to
Anderson and that his equitable remedies against the Debtor for such breach
survive the bankruptcy pursuant to Section 541(c)(2) of the Bankruptcy Code.
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Under Anderson’s theory, no transfer of property of the Debtor occurred
because she never owned the property but rather merely held it in trust for his
benefit. The evidence does not support this theory, however. Anderson granted
the Debtor a power of attorney which gave her control over his affairs. He
transferred the Booneville Property into the Anderson Trust and gave the Debtor
complete control over the property, including the authority to transfer the property
to herself. Anderson was aware of the Hixon Trust and transferred additional
property into such trust. Anderson was aware that the Debtor used assets of the
Anderson Trust and of the Hixon Trust for her own personal benefit and he never
objected to such use. Anderson effectively granted control of his assets to the
Debtor to avoid his creditors, including his ex-wife, and to avoid the possibility of
criminal forfeiture. Anderson cannot transfer assets beyond the reach of his
creditors and later disavow the consequences of such transfer when they operate to
his detriment. Cook v. Mason, 185 S.W.2d 793, 794 (Mo. 1945); Coleberd v.
Coleberd, 933 S.W.2d 863, 870 (Mo. App. 1996); Kahn v. Royal Banks of
Missouri, 790 S.W.2d 503, 506-07 (Mo. App. 1990). Furthermore, Anderson was
aware of the Debtor’s use of the assets in the Anderson Trust and the Hixon Trust,
including her use of trust assets for her personal benefit, and consented,
confirmed, and ratified such behavior. Anderson cannot now complain about the
Debtor’s use of the trust assets. Scullin v. Clark, 242 S.W.2d 542, 548 (Mo.
1951). Anderson consented to the Debtor’s use of property; he cannot later retract
such consent to avoid subsequent consequences. Id.
On appeal, Anderson argues that the Debtor breached her fiduciary duty as
trustee of the Anderson Trust when she transferred the Booneville Property to the
Hixon Trust and, therefore, he is entitled to equitable relief in the form of a
constructive or resulting trust. To establish a breach of fiduciary duty by the
Debtor, Anderson must establish that a fiduciary relationship existed between the
Debtor and Anderson, that the Debtor breached such duty, and that the breach
caused Anderson to suffer harm. Zakibe v. Ahrens & McCarron, Inc., 28 S.W.3d
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373, 381 (Mo. App. 2000). The Debtor acted within the broad scope of authority
granted to her by the terms of the Anderson Trust; therefore Anderson cannot
establish a breach of duty.
An implied trust is a legal remedy available where no express agreement
exists. Parker v. Blakeley, 93 S.W.2d 981, 988 (Mo. 1936); Suhre v. Busch, 123
S.W.2d 8, 15 (Mo. 1938). An implied trust requires an extraordinary degree of
proof . Parker v. Blakeley, 93 S.W.2d at 987-88. Implied trusts include resulting
trusts and constructive trusts. Resulting trusts are based upon the presumed
intention of the parties as determined from the facts and circumstances which
existed at the time of the transaction in dispute. Id. at 988. Here the parties’
intentions with respect to the Booneville Property were clearly expressed in the
Anderson Trust. A resulting trust is not necessary where an express trust governs
the situation
A constructive trust is a means of restitution to remedy fraud or wrongdoing
by making the wrongdoer a trustee for the benefit of the harmed party with respect
to the property wrongly acquired. O’Neal v. Southwest Missouri Bank of
Carthage (In re Broadview Lumber Co., Inc.), 118 F.3d 1246, 1253 (8th Cir.
1997); Parker v. Blakeley, 93 S.W.2d at 988; Lim v. Chong, 22 S.W.3d 97, 101
(Mo. App. 2001). Here, the Debtor did not commit fraud as against Anderson.
Anderson expressly gave the Debtor all the incidents of ownership with respect to
the Booneville Property. He cannot now claim fraud where she acted within the
authority expressly granted to her by Anderson. Here an express agreement, the
Anderson Trust, and Anderson’s ratification of the transfer of the Booneville
Property to the Hixon Trust govern the relationship between the parties. The
Debtor acted within the powers expressly granted to her. No grounds exist for an
implied trust.
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B. The Court Did Not Abuse Its Discretion in Denying the Motion to
Alter or Amend.
The bankruptcy court has broad discretion in determining whether to grant a
motion to alter or amend a judgment. Wayzata Bank & Trust Co. v. A & B Farms,
885 F.2d 590, 595 (8th Cir. 1988). Apparently Anderson’s motion to alter or
amend or for a new trial requested the imposition of a constructive trust on the
annuities in favor of Anderson.3 The bankruptcy court agreed with the Trustee
that Anderson failed to property raise the issue of breach of fiduciary duty as an
affirmative defense. However, the bankruptcy court exercised its discretion to
address the merits of Anderson’s constructive trust argument in its order denying
the motion to alter or amend and denied such relief on the merits. A court is free
to amend pleadings to conform with evidence after trial. Fed.R.Civ.P. 15(b),
applicable herein pursuant to Fed.R.Bankr.P. 7015. The bankruptcy court did not
abuse its discretion in addressing the constructive trust issue nor in denying the
motion to alter or amend or for a new trial.
CONCLUSION
The bankruptcy court correctly determined that the Debtor’s purchase of
certain annuities constituted an avoidable fraudulent transfer to Anderson pursuant
to 11 U.S.C. § 548. Additionally, the bankruptcy court acted within its sound
discretion when it addressed the merits of Anderson’s request for a constructive
trust as part of its denial of Anderson’s motion to alter or amend or for a new trial.
Accordingly, we AFFIRM.
3
Neither party elected to include a copy of such motion in the appendices
filed in connection with this appeal.
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A true copy.
Attest:
CLERK, U.S. BANKRUPTCY APPELLATE PANEL,
EIGHTH CIRCUIT
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