Summary
denying judgment creditor relief from automatic stay to pursue state court fraudulent conveyance action "because it lacks standing and such a right is vested in the Trustee."
Summary of this case from Surf N Sun Apts., Inc. v. DempseyOpinion
No. 96-4695-3P7
February 19, 1997
FINDINGS OF FACT AND CONCLUSIONS OF LAW ON MOTION FOR RELIEF FROM THE AUTOMATIC STAY
This case came before the Court upon Williamson Construction Company's ("Williamson's") Motion for Relief from the Automatic Stay. Upon evidence presented at the hearing held on December 23, 1997, the court enters the following findings of fact and conclusions of law:
FINDINGS OF FACT
1. On August 5, 1996, Linda H. Ross ("Debtor") filed her voluntary petition for relief under Chapter 7 of the Bankruptcy Code, and listed Williamson as an unsecured creditor. (Doc. 1).
2. On December 17, 1996, Williamson filed a proof of claim asserting that Debtor is indebted to it for $250,00 pursuant to a Complaint (Civil Action No. 9411661-24) for Fraudulent Conveyance filed by Williamson against Debtor and her husband in the Superior Court of Cobb County, Georgia. (Claims File 2). Williamson listed its claim as unsecured and not subject to set-offs or counterclaims. (Id.).
3. The facts leading up to the fraudulent conveyance action in the state court arose out of the conveyance of real property to Debtor from her husband. (Doc. 39). In August 1989, Debtor's husband conveyed two parcels of real property located in Georgia to Debtor. (Id.). The deeds were recorded on August 28, 1990 and September 10, 1990. (Id.).
4. The conveyance of the two parcels of land to Debtor occurred during the course of a lawsuit between Williamson and Debtor's husband. In October 1988, Williamson sued Debtor's husband seeking damages in excess of $400,000 for breach of construction contract. (Id.). On January 31, 1991, Williamson obtained a Final Judgment against Debtor's husband in the amount of $436,727.74. (Id.). Williamson argues that the husband conveyed the parcels of land to Debtor to prevent it from collecting on the judgment it obtained. (Id.).
5. On November 21, 1996, Williamson filed its motion for relief from the automatic stay pursuant to 11 U.S.C. § 362, alleging that Debtor engaged in a fraudulent conveyance of real property with her husband to defraud Williamson, and as a result of Debtor's fraudulent activities, Debtor owes Williamson approximately $250,000. (Doc. 24). Williamson is seeking the relief from the automatic stay to pursue its remedies for fraudulent conveyances against Debtor in the Georgia state court. (Id.).
6. A hearing was held on December 23, 1996, and the Court asked the parties to brief the issue of whether a creditor is entitled to relief from the automatic stay to pursue a state fraudulent conveyance action. More specifically, whether Williamson has standing to bring its fraudulent conveyance action. Both parties submitted memoranda of law on the issue.
7. In its memorandum of law, Williamson argued that under 11 U.S.C. § 362(d)(1), cause exists for this Court to grant it relief from the automatic stay because it is seeking a judgment on some collateral source and is pursuing injunctive relief in state court. (Doc. 39).
8. Debtor argues that if the Court balances the interests of both sides, the Debtor's interests outweigh those of Williamson. (Doc. 41). Debtor further argues that a state action and the adversary proceeding filed by Williamson in this case, both dealing with fraudulent conveyances, would be duplicitous. (Id.).
9. In addition to the state court action, for which Williamson seeks relief from the stay, on November 15, 1996, Williamson filed a complaint objecting Debtor's discharge pursuant to 11 U.S.C. § 523(c)(2)(A) and 727(a) alleging, inter alia, that Debtor engaged in fraudulent conveyance of real property with full knowledge of her husband's debt to Williamson.
CONCLUSIONS OF LAW
The primary issue before the Court at this time is whether Williamson has standing to pursue a state fraudulent conveyance action against Debtor. The filing of the bankruptcy petition "operates as a stay [against] 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" See 11 U.S.C. § 363(a)(3).
This Court takes the position that a fraudulent conveyance action is property of the estate, to be pursued by the trustee, and a judgment creditor is not entitled to relief from the automatic stay to prosecute a fraudulent conveyance action against the Debtor in state court. See American Nat. Bank of Austin v. MortgageAmerica Corp. (In Re MortgageAmerica Corp.), 714 F.2d 1266, 1275-76 (5th Cir. 1983) (stating that an action based on fraudulent transfer is vested in the trustee). To allow individual creditors to pursue fraudulent conveyance actions to obtain possession of property of the estate for their own benefit goes against the fundamental policy of equitable distribution of property among creditors, and would also defeat the purpose of the trustee's avoidance powers. See NDB Bank v. Fletcher, 173 B.R. 445, 452-53 (Bankr.W.D.Mich. 1995).
In this case, Williamson, if granted relief from the stay, would be asking the state court to declare fraudulent each parcel of land conveyed to Debtor by her husband, and to make the land transfer transactions between Debtor and her husband null and avoid. (Williamson Ex. 1). Because Debtor obviously has an interest in the parcels of land Williamson is seeking to declare fraudulent, and null and void, they are property of the debtor's estate, and for the benefit of all creditors. Williamson is not entitled to relief from the automatic stay to obtain possession of the property of the estate for its own benefit. Therefore, the Court concludes that Williamson's motion for relief from the automatic stay should be denied.
CONCLUSION
Williamson, a judgment creditor, is not entitled to relief from the automatic stay to proceed in state court to prosecute its fraudulent conveyance action against Debtor because it lacks standing and such a right is vested in the Trustee. The Court will enter a separate order consistent with these findings of fact and conclusions of law.