United States Bankruptcy Appellate Panel
FOR THE EIGHTH CIRCUIT
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No. 11-6003
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In re: Jeremiah Joseph Paul and *
Stacy Marie Paul *
*
Debtors *
*
John S. Lovald, Trustee * Appeal from the United States
* Bankruptcy Court for the
Plaintiff - Appellant * District of South Dakota
*
v. *
*
Marissa Hunter; Misti Paul *
*
Defendants - Appellees *
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Submitted: February 16, 2011
Filed: March 7, 2011 (Amended March 8, 2011)
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Before KRESSEL, Chief Judge, FEDERMAN and SALADINO, Bankruptcy Judges
FEDERMAN, Bankruptcy Judge
Plaintiff John S. Lovald, the Chapter 7 Trustee in the bankruptcy case of
Jeremiah Joseph Paul and Stacy Marie Paul, appeals from the Order of the Bankruptcy
Court1 finding in favor of Defendants Marissa Hunter and Misti Paul on the Trustee’s
adversary proceeding to recover fraudulent transfers from them. For the reasons that
follow, the judgment is AFFIRMED.
FACTUAL BACKGROUND
Curtis Paul is the father of Debtor Jeremiah Paul and Defendant Misti Paul, who
is Jeremiah’s sister. Curtis is married to Defendant Marissa Hunter, who is Jeremiah’s
step-mother.
Curtis became the owner of twenty acres of land in 1986. In order to avoid his
own creditors, Curtis transferred the property to Jeremiah on August 21, 2003, with
the oral agreement that Jeremiah would re-transfer the property at Curtis’ request.
Also on August 21, 2003, Curtis transferred a 1976 mobile home to Jeremiah.
Jeremiah never lived on the twenty acres or used the mobile home.
Jeremiah then transferred the 1976 mobile home to his sister, Misti, on April
24, 2008. In addition, at Curtis’ request, Jeremiah transferred the twenty acres to
Marissa, his step-mother, by quitclaim deed dated January 9, 2009. Both transfers
were made for no consideration. According to the Trustee, the value of the land
transferred to Marissa was $31,738, and the value of the mobile home transferred to
Misti was $6,392. The Defendants value the real estate at ten to fifteen thousand
dollars, and the mobile home at five hundred dollars.
On August 19, 2009, Jeremiah and his wife, Stacy, filed a Chapter 7 bankruptcy
petition. On April 23, 2010, the Trustee filed an adversary proceeding against Marissa
and Misti to recover the transfers of the real estate and mobile home.
1
The Honorable Charles L. Nail, Jr., United States Bankruptcy Judge for the District of
South Dakota.
2
At trial, the Trustee contended that the transfers were avoidable under
Wyoming’s Uniform Fraudulent Transfer Act.2 Section 34-14-205 of the Wyoming
Statutes provides, in relevant part:
(a) A transfer made or obligation incurred by a debtor is fraudulent as to
a creditor, whether the creditor’s claim arose before or after the transfer
was made or the obligation was incurred, if the debtor made the transfer
or incurred the obligation:
(i) With actual intent to hinder, delay or defraud any creditor of
the debtor; or
(ii) Without receiving a reasonably equivalent value in exchange
for the transfer or obligation, and the debtor:
(A) Was engaged or was about to engage in a business or
a transaction for which the remaining assets of the debtor
were unreasonably small in relation to the business or
transaction; or
(B) Intended to incur, or believed or reasonably should
have believed that he would incur, debts beyond his ability
to pay as they became due.3
The Trustee bore the burden of proving, by clear and convincing evidence, that the
transfers were actually or constructively fraudulent under this statute.4 The Trustee
2
The Trustee initially filed the Complaint under 11 U.S.C. § 548. When the Trustee
amended his Complaint, he referred to “SDCL Chapter 54-8A,” South Dakota’s Uniform
Fraudulent Transfer Act. The record is not clear as to the reason, but the parties all then
proceeded under Wyoming’s Uniform Fraudulent Transfer Act, perhaps because the real
property is located in Wyoming. As it is undisputed that Wyoming law applies, we likewise
analyze the case under Wyoming law.
3
Wyo. Stat. Ann. § 34-14-205 (1977).
4
In re Baker, 273 B.R. 892, 895 (Bankr. D. Wyo. 2002).
3
did not assert that Jeremiah made the transfers with actual intent to hinder, delay or
defraud any of Jeremiah’s creditors under subparagraph (i), or that Jeremiah intended
to incur debts beyond his ability to pay under (ii)(B). And, the Bankruptcy Court
found that the Trustee had proven that Jeremiah was the owner of the properties and
that he transferred them to Marissa and Misti for less than reasonably equivalent
value. Therefore, the sole issue on appeal is whether, at the time of the transfers,
Jeremiah was engaged in or was about to engage in a business or transaction for which
his remaining assets were unreasonably small in relation to the business or transaction.
The Court found that the Trustee failed to so prove, and therefore held in favor of the
Defendants. The Trustee appeals.
STANDARD OF REVIEW
We review findings of fact for clear error, and legal conclusions de novo.5 A
finding is clearly erroneous when the reviewing court is “left with the definite and
firm conviction that a mistake has been committed.”6
DISCUSSION
Under § 544(b) of the Bankruptcy Code, a trustee may avoid any transfer of an
interest of the debtor in property that is voidable under applicable law by a creditor
holding an allowable unsecured claim.7 As stated above, the applicable law here is the
Wyoming constructive fraud statute found at § 34-14-205(ii) of the Wyoming
Statutes. The sole point on appeal is whether the Bankruptcy Court clearly erred in
5
First Nat’l Bank of Olathe v. Pontow (In re Pontow), 111 F.3d 604, 609 (8th Cir.
1997); Sholdan v. Dietz (In re Sholdan), 108 F.3d 886, 888 (8th Cir. 1997); Fed. R. Bankr. P.
8013.
6
Anderson v. Bessemer City, 470 U.S. 564, 573, 105 S.Ct. 1504, 1511, 84 L.Ed.2d 518
(1985).
7
11 U.S.C. § 544(b).
4
its factual finding that, at the time of the transfers to Marissa and Misti, Jeremiah was
engaged in or was about to engage in a business or transaction for which his remaining
assets were not unreasonably small in relation to the business or transaction.
As the Bankruptcy Court pointed out in making its ruling from the Bench, the
record contained no evidence concerning a “business or transaction” in which
Jeremiah was going to engage following the two transfers. As such, the Bankruptcy
Court looked to Jeremiah’s carrying on his day-to-day life as the “business or
transaction” at issue.
To rephrase, then, the issue is whether the Bankruptcy Court clearly erred in
finding that, at the times of the transfers, Jeremiah’s remaining assets were not
unreasonably small in relation to his day-to-day life. No Wyoming case has defined
“unreasonably small” for these purposes.
The only evidence offered on that issue was the Debtors’ bankruptcy schedules.
Neither Jeremiah, nor his co-debtor wife, were called to testify at trial. The Trustee
is correct that the schedules show that, as of the date of the filing of the bankruptcy
petition, the Debtors were insolvent and that their expenses exceeded their income.
However, as the Bankruptcy Court correctly held, it is the dates of the transfers, not
the petition date, that are relevant.
The Trustee asserts that the Statement of Financial Affairs and Curtis’
testimony showed that Jeremiah’s financial condition was the same in the two years
prior to the filing of the petition. Curtis testified about his own financial condition and
the reasons why he transferred the property to Jeremiah in 2003, but he did not testify
about Jeremiah’s financial condition at any time.
The Trustee here asserts that the information provided in the schedules and
SOFA amount to “uncontroverted circumstantial evidence” that Jeremiah’s assets on
5
the transfer dates were the same as they were on the petition date. However, the
schedules and SOFA are not determinative of the Debtors’ assets and financial
condition at the times of the transfers. For example, as the Defendants point out,
Schedule F, which lists creditors and amounts owed, does not reflect any dates on
which the debts were incurred, and much of the debt is identified as belonging to
Stacy. Moreover, the Defendants point out that, while Jeremiah was unemployed at
the date of the filing and for the sixty days prior to the filing, the Debtors earned
income in excess of $60,000 per year in the two years prior to the filing of the
petition, which would include the times of both transfers.
The Trustee asserts that the Defendants did not present any evidence that
Jeremiah’s financial condition was any different on the dates of the transfers than it
was on the petition date. However, it was the Trustee who bore the burden of proof
on that issue. In essence, relying solely on the schedules and SOFA as evidence of
Jeremiah’s financial condition nine and sixteen months previous necessarily requires
speculation. In the absence of any other probative evidence, the Bankruptcy Court
properly declined to engage in such speculation. As a result, the Bankruptcy Court
did not clearly err in finding that the Trustee’s evidence failed to meet his burden.
ACCORDINGLY, the judgment of the Bankruptcy Court is AFFIRMED.
6