Opinion
Case No. 1:01-CV-50
April 9, 2001
JUDGMENT
In accordance with the Opinion of this date;
IT IS HEREBY ORDERED that Appellees' Motion to Dismiss (Dkt. No. 4) is DENIED.
IT IS FURTHER ORDERED that the decision of the Bankruptcy Court is AFFIRMED.
OPINION
This matter is before the Court to consider the appeal of the Thomas A. Bruinsma, Chapter 7 Trustee, of the Bankruptcy Court's Order of November 15, 2000, which dismissed the underlying adversary proceeding against Appellees Margaret A.E. Thomas and Margaret Anna Elizabeth Thomas Trust. This matter is also before the Court to consider Appellees' Motion to Dismiss the instant appeal because of the untimely filing of the Appellant's Brief.
RECORD ON APPEAL AND PROCEDURAL HISTORY
An examination of the Bankruptcy Court's record and the procedural history of this appeal shows the following:
Appellant filed his Complaint in the underlying adversary proceeding on October 7, 1999 alleging that transfers by Margo Lynne Thomas (the Debtor) to Appellees were fraudulent conveyances and/or preferential transfers. (Record # 9.) The Debtor's Chapter 7 Petition was filed with the Bankruptcy Court on October 8, 1997. Appellees answered the Complaint by denying the allegations. (Record #10.) At trial, the Bankruptcy Court heard from two witnesses Margaret Thomas (since deceased) and the Debtor regarding a transfer of real property in 1996 and a cash transfer of $20,000 in 1997.
As to the real property, both witnesses testified that in October 1982 Cecilia Mailing deeded to Debtor and Margaret Thomas (the Debtor's mother), as joint tenants, real property located at 1852 Willard S.E., Grand Rapids, Michigan. They further testified that Margaret Thomas took physical possession of the property and was completely responsible for the upkeep, utilities and taxes. They testified that the Debtor did not take physical possession of the property, was not delivered the original deed, and was not responsible for the upkeep, utilities and taxes. Both Debtor and Margaret Thomas testified that the joint title was only intended by the grantor as a probate avoidance device and was not intended to convey a present ownership interest to Debtor. They further testified that Margaret Thomas in June 1996 did estate planning. In connection with the estate planning, Margaret Thomas and Debtor quit claimed any interest in 1852 Willard S.E. in favor of the Margaret Anna Elisabeth Trust ("Trust") for no consideration.
On the subject of a $20,000 cash transfer, the witnesses testified that Margaret Thomas loaned Debtor $52,000 in 1995. The loan obligation was formally documented and transferred by Margaret Thomas to the Trust in June 1996. At the time, a mortgage was executed in favor of the Trust as to two parcels of real estate owned by Debtor. (Record #14, Exhibit N.) In May 1997, Debtor sold one of the parcel of real estate subject to the mortgage and paid the Trust, by cash to Margaret Thomas, the sum of $20,000 for the partial release of its mortgage. (Record #14, Exhibits U and V.) Margaret Thomas then used a portion of the cash to purchase a used car, and kept the balance of the cash in her home. (Record #26 ("Trial Transcript") at 113-114.)
This matter was tried before the Bankruptcy Court on August 30, 2000. After trial, Appellees moved to dismiss on the ground that the evidence showed that the real estate transfer was not made by the Debtor, but by Margaret Thomas, and that the cash transfer was a proper payment for an antecedent debt. (Record, Exhibit 25.) The Bankruptcy Court agreed with the Appellees' arguments and dismissed the claims by Order of November 15, 2000. (Record #29.)
The Order itself appears to misstate the counts when it says that Count V was dismissed because the transferred property was not the property of the Debtor — which was the rationale for dismissal of the real estate count, but not the rationale for dismissal of counts as to the $20,000. The Order states the matter correctly as to Count IV — the preferential transfer count — that the $20,000 was not preferential because it was payment for a secured debt.
This appeal was filed on January 22, 2001 with the United States Bankruptcy Court for the Western District of Michigan and, thereafter, the record was transmitted to this Court. On February 14, 2001, Appellant filed an untimely motion to extend time to file Appellant's Brief. The motion was granted and Appellant was given until February 24, 2001 to file his Appellant's Brief. On February 27, 2001, Appellees filed a Motion to Dismiss the appeal on the ground that the Appellant had violated Bankruptcy Rule 8009 by failing to file his brief on or before February 12, 2001. On February 28, 2001, Appellant filed his Appellant's Brief. On March 14, 2001, Appellees filed Appellees' Brief. Appellant has not filed a reply brief as permitted by Bankruptcy Rule 8009(a)(3).
STANDARD FOR APPELLATE REVIEW
Pursuant to Bankruptcy Rule 8013, the district court's review of a bankruptcy court's findings are subject to a "clearly erroneous" standard of review. Rule 8013; In re Rembert, 141 F.3d 277, 280 (6th Cir. 1998). The district court's review of the bankruptcy court's legal conclusions, however, is conducted de novo. Id. "A factual finding will only be clearly erroneous when, although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed." United States v. Ayen, 997 F.2d 1150, 1152 (6th Cir. 1993) (citations and quotation omitted). When there are "mixed" questions of fact and law, the reviewing court "must break it down into its constituent parts and apply the appropriate standard of review for each part." In re Batie, 995 F.2d 85, 88 (6th Cir. 1993) (citing In re Brown, 951 F.2d 564, 567 (3d Cir. 1991)).
STANDARD FOR DISMISSAL
Time limitations imposed by Rule 8009 of the Bankruptcy Code are not jurisdictional and the district court is not mandated to dismiss for failure to comply in every case. In re Tampa Chain Co., Inc., 835 F.2d 54, 55 (2d Cir. 1987). Whether to dismiss an appeal for failure to file a timely appellate brief is within the district court's discretion. In re Beverly Mfg. Corp., 778 F.2d 666, 667 (11th Cir. 1985); In re Mackey, 123 B.R. 83, 85 (D.Colo. 1991). However, the Sixth Circuit Court of Appeals has previously held that a late filing does not justify dismissal of a bankruptcy appeal unless there is a showing of bad faith. In re Winner Corp., 632 F.2d 658, 660-61 (6th Cir. 1980) (citing Drybrough v. Ware, 111 F.2d 548, 550 (6th Cir. 1940)); see also In re Beverly Mfg. Corp., 778 F.2d 666, 667 (11th Cir. 1985). This rule is consistent with the federal courts' general understanding of dismissal as a severe sanction, which is to be sparingly used. Daniel R. Cowans, Bankruptcy Law Practice § 18.6, at 530 (6th ed. 1994).
LEGAL ANALYSIS
A. Dismissal
In this case, the Appellant's Brief was filed on February 28, 2001 — four days after the extended date of February 24, 2001. This late filing is not laudable. Appellant's counsel is instructed to timely comply in the future or face sanctions. Nevertheless, there has been no showing of prejudice to the Appellees and no showing of bad faith. Therefore, the Motion to Dismiss will be denied since dismissal is not warranted on the facts of this case.
B. Transfer of Real Estate
Appellant challenges the Bankruptcy Court's conclusions as to the transfer of real estate to the Trust. Appellant regards the transfer as a fraudulent conveyance voidable under Michigan law and the "strong arm" powers of the Chapter 7 Trustee. See Mich. Comp. Laws §§ 566.11—23 (repealed eff. Dec. 30, 1998); Doe v. Ewing, 517 N.W.2d 849, 850-51 (Mich.Ct.App. 1994); 11 U.S.C. § 554(b). The parties agree that the conveyance in question was made at a time when the Debtor was insolvent and was without consideration. See Mich. Comp. Laws § 566.14 (repealed eff. Dec. 30, 1998). Thus, the controlling issue here is whether the transfer was made by the Debtor and Margaret Thomas or only by Margaret Thomas.
Appellant's legal argument is that the Bankruptcy Judge lacked authority to determine whether Margaret Thomas alone received a gift based upon parol evidence in that the language of the deed was clear as conveying the land to both Margaret Thomas and the Debtor. While the parol evidence rule is a fixture in the law of contracts, it is less commonplace in the law of notes and conveyances. This is because bills and deeds are only intended to carry out legal duties on one side of a transaction; they are not intended as a complete integration of an entire transaction. Holt v. Federal Deposit Insurance Corp., 216 B.R. 71, 76 (D.Mass. 1977). Moreover, when courts are required to consider gifts, parol evidence becomes very important to establish a donative intent to pass title to a grantee as well as both delivery and acceptance of a deed. This principle was explained well by Magistrate Judge Joseph Scoville's decision in Lavean v. Cowels, 835 F. Supp. 375, 385 (W.D.Mich. 1993), which stated as follows:
Plaintiff's counsel has objected throughout the course of these proceedings to the consideration of extrinsic evidence concerning the intent of Lila Cowels or the date and circumstances surrounding delivery of the Lila/Paul deed. Plaintiff contends that the court is bound by the four corners of the deeds, in the absence of ambiguity. Although plaintiff's position may have some validity in a case involving bona fide purchasers who rely on the state of recorded title, that is not the situation here. Neither plaintiff nor defendant is a bona fide purchaser. They each seek the benefit of an alleged gift from their mother, given without consideration. Under Michigan law, the essential elements for a valid gift of real estate are (1) donative intent of the grantor to pass title to the grantee, (2) actual or constructive delivery, and (3) acceptance of the gift by the donee. Stinebaugh v. Bristol, 132 Mich. App. 311, 347 N.W.2d 219, 221 (1984); see Osius v. Dingell, 375 Mich. 605, 134 N.W.2d 657, 659 (1965). Extrinsic evidence is admissible on the issues of intent, delivery, and acceptance, without the necessity for any ambiguity in the deed itself. See Schmidt v. Jennings, 359 Mich. 376, 102 N.W.2d 589, 59-295 (1960) (delivery and acceptance of deed proved by parol evidence); McMahon v. Dorsey, 353 Mich. 623, 91 N.W.2d 893, 895 (1958) (fact of delivery must be judged in context of the words, acts and circumstances surrounding the transaction); Prentis v. Prentis, 189 Mich. 1, 155 N.W. 473, 474 (1915) (parol evidence admissible to show grantor's intent in quiet title action); Havens v. Schoen, 108 Mich. App. 758, 310 N.W.2d 870, 872 (1981). Although extrinsic evidence is not admissible to alter the express terms of an unambiguous deed, deeds are generally silent on issues such as underlying intent and date of delivery. Hence, consideration of extrinsic evidence in no way alters or varies the terms of the instrument.Lavean v. Cowels, 835 F. Supp. at 385.
This Court believes that the parol evidence received by the Bankruptcy Court as to the intent of the donor was proper under the Levean decision, which accurately states the law of Michigan. This being the case, the decision of the Bankruptcy Court is affirmed since there was no legal error in allowing parol evidence and since the Bankruptcy Judge's factual findings, in light of the evidence submitted concerning the 1982 deed, were not clearly erroneous.
C. Transfer of Cash
Appellant also maintains on appeal that the transfer of cash to Margaret Thomas was a fraudulent conveyance in violation of Michigan Compiled Laws § 566.14 (repealed eff. Dec. 30, 1998). Since the Trust in question was owed an antecedent debt, if the payment was made to the Trust to satisfy in part the loan debt to the Trust, the payment qualifies as a payment for "fair consideration" under the statutory definition of that term. See Mich. Comp. Laws § 566.13 (repealed eff. Dec. 30, 1998). To avoid this conclusion, Appellant maintains that the payment was not made to Margaret Thomas as Trustee, but Margaret Thomas in her personal capacity. In support of this argument, Appellant notes that the funds were not deposited into an existing trust account.
Whether the payments were made to the Trust or to Margaret Thomas personally is a factual issue. The Bankruptcy Court's implicit conclusion as to that issue was not clearly erroneous. The payment was made as a condition for the release of the Trust's mortgage and coincided in time with the release of the mortgage. At the time of payment, the Trustee had complete authority to withdraw and use Trust property for her personal benefit. ( See Record #14, Exhibit D.) The reservation of such powers is permitted by Michigan law and did not affect the validity of the Trust. See Goodrich v. City Nat. Bank Trust Co., 258 N.W. 253 (Mich. 1935); Rose v. Rose, 1 N.W.2d 458 (Mich. 1942); Soltis v. First of America Bank-Muskegon, 513 N.W.2d 148 (Mich.Ct.App. 1994). Accordingly, the Court determines that the Bankruptcy Court's conclusion that the payment was made to the Trust was not clearly erroneous.
CONCLUSION
In accordance with this Opinion, the Motion to Dismiss will be denied and judgment shall enter affirming the decision of the Bankruptcy Court.