Wheatley v. Wood

UNITED STATES BANKRUPTCY COURT

WESTERN DISTRICT OF KENTUCKY

In re: )

)

JULIE MARIE WOOD ) CASE NO. 18-32555

)

Debtor )

)

MICHAEL WHEATLEY, )

Plaintiff )

v ) A. P. NO. 19-3041

JACK D. WOOD, JENNIFER D. WOOD, and )

MARGARET WOOD )

Defendant )

MEMORANDUM

This case comes before the Court on the Motion for Partial Summary Judgment filed by the

Plaintiff, Michael Wheatley (“Plaintiff” or “Trustee”). This action concerns the avoidance and

recovery of certain prepetition transfers of property belonging to the Chapter 7 bankruptcy estate

of the debtor, Julie Marie Wood (“Debtor”). The Trustee has alleged that Jack Wood (“Jack”),

Margaret Wood, and Jennifer Wood (“Jennifer”) (collectively the “Defendants”) were recipients

of avoidable prepetition transfers of estate property. The Trustee has filed this summary judgment

motion alleging that the undisputed facts, based upon sworn testimony, pleadings, and admissions,

establish that the Trustee is entitled to judgment as a matter of law. Trustee further requests that the

Court set this adversary proceeding for an evidentiary hearing on the sole issue of the value of the

Debtor’s 20% ownership interest in a family owned real estate business (the “Joint Venture”). The

Defendants oppose the Motion for Summary Judgment.

PROCEDURAL HISTORY

On August 21, 2018, the Debtor voluntarily filed the above-captioned Chapter 7 bankruptcy

case. On November 14, 2018, Debtor filed a Motion to Convert from Chapter 7 to Chapter 13,

which received objections from the Trustee and Janice Gerstenecker, Debtor’s only creditor

(“Gerstenecker”). After conducting an evidentiary hearing on April 23, 2019, the Court denied

Debtor’s Motion to Convert, finding that the Debtor had not met the burden of showing her

eligibility for Chapter 13 and for lack of good faith.

On December 2, 2019, Trustee filed a Complaint seeking to avoid and recover property of

the estate. Trustee presented six causes of action which he asserted entitled him to either avoid or

recover Debtor’s property that was transferred to the Defendants, whom the Trustee characterized

as insiders. Specifically, prior to the Petition Date, the Trustee alleged that the Defendants received

at least $47,701.28 from Debtor’s bank accounts and an unknown amount from the unilateral

termination of the Debtor’s 20% interest in the Joint Venture.

On February 7, 2020, nine weeks after the Complaint was served, Defendants filed a Motion

for Leave to File Answer, which the Court granted on March 11, 2020. One collective answer was

filed on behalf of Defendants (the “Answer”). Notably, the Defendants admitted more than half of

the factual allegations presented in the Complaint. The Defendants did not assert any affirmative

defenses to any of Trustee’s claims in the Answer.

On January 8, 2021, the Trustee filed a Motion to Approve Settlement Agreement, wherein

he sought Court authority to settle the dispute with the Defendants. Gerstenecker opposed the

motion. After conducting an evidentiary hearing on the matter, on August 17, 2021, the Court

entered a Memorandum Opinion and Order denying approval of the Settlement Agreement. In that

Memorandum, the Court found that the Defendants had admitted that the Debtor owned a 20%

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interest in the real estate Joint Venture with the Defendants. This conclusion was supported by the

Answer, Jack Wood’s sworn testimony at the hearing on the Motion to Convert, and by the Debtor’s

tax returns, wherein she claimed a deduction for the Joint Venture’s losses in order to reduce her

amount of taxable income tax. Based upon this conclusion, the Court would not approve the

Trustee’s proposed settlement that would recover nothing for the only creditor.

Based in part on the August 17, 2021 Memorandum, the Trustee has now moved for partial

summary judgment. The Trustee seeks to recover transfers related to the Debtor’s bank accounts

and the Debtor’s 20% interest in the real estate Joint Venture. As stated above, the Defendants

oppose the Motion.

JURISDICTION

The subject matter jurisdiction of bankruptcy courts is set forth in 28 U.S.C. § 1334(a).

Bankruptcy courts have jurisdiction to hear all cases under title 11 of the United States Code (the

Bankruptcy Code) and all claims arising thereunder. 28 U.S.C. §§ 157(b) and 1334. These “arising

under” claims are referred to as “core”proceedings and “either invoke[ ] a substantive right created

by federal bankruptcy law or ... could not exist outside of the bankruptcy.” Browning v. Levy, 283

F.3d 761, 773 (6th Cir. 2002) (internal quotation marks and citations omitted). Core proceedings

include matters concerning the administration of the bankruptcy estate, actions to determine, avoid,

and recover preferences, actions to determine, avoid, and recover fraudulent conveyances, and

actions to turn over property of the estate. 28 U.S.C. §§ 157(b)(2)(A), (E), (F) and (H).

UNDISPUTED FACTS

I. Bank Accounts

The Defendants are all family members of the Debtor. Jack is Debtor’s father; Margaret is

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Debtor’s mother; and Jennifer is Debtor’s sister. Consequently, the Defendants are insiders of

Debtor, as that term is defined in the Bankruptcy Code. 11 U.S.C. § 101(31)(A)(i).

When Debtor was a minor, Jack opened several Branch Banking and Trust Company

("BB&T") bank accounts that were titled in Debtor's name with Jack identified as the custodian.

In 2007, Jack, Jennifer, and Debtor opened jointly titled bank accounts with PNC Bank, N.A.

("PNC"). The bank accounts with PNC and BB&T were funded, in part, by tax refunds issued to

Debtor.

Debtor was married to Adam Gerstenecker from 2012 until their divorce in 2015. In 2014,

Gerstenecker, Adam's mother, loaned Debtor approximately $78,444.02 to repay her student loans.

When Debtor defaulted on the loan, Gerstenecker sought and obtained a judgment in Alabama state

court, which Debtor appealed to the Alabama Supreme Court. The Alabama Supreme Court affirmed

Debtor's liability to Gerstenecker but reversed the damage award and remanded the case with

instructions for the trial court to bifurcate the amount unpaid from the amount paid. In September

of 2017, the state trial court entered a final judgment against Debtor (the "Alabama Judgment").

On August 21, 2017, one month before entry of the final Alabama Judgment and exactly one

year prior to the Petition Date, Jack and Jennifer closed all jointly held bank accounts bearing

Debtor's name. At the time of the closing, and within the one-year period prior to the Petition Date,

Debtor possessed an interest in these closed accounts. The combined balances as of the date the

accounts were closed totaled $47,701.28.

The BB&T and PNC accounts were closed to prevent Gerstenecker from obtaining those

funds to satisfy the Alabama Judgment. Debtor was aware of the accounts, was a signatory on those

accounts, and had checks issued in Debtor’s name for those accounts.

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Jack and Jennifer created three new accounts at PNC. The balances of the closed accounts

were transferred to accounts at PNC titled in the names of only Jack and Jennifer. The only

difference between the former accounts and the newly created accounts is that the Debtor’s name

was removed as an accountholder.

Debtor did not receive any funds from either the BB&T accounts or the PNC accounts.

Despite being aware of the accounts, the Debtor did not report the closed accounts in her initial

bankruptcy petition, nor did she disclose the closed accounts at the 341 Meeting of Creditors.

II. Joint Venture

The Debtor and the Defendants were joint owners in a Joint Venture, which owned numerous

pieces of real and personal property located near and around Jefferson County Kentucky. Jack

completed Debtor’s federal income tax returns for 2015, 2016, 2017, and 2018. Debtor’s 2016

federal income tax return reflects a $44,012 loss of income resulting from losses incurred by the

Joint Venture. During the evidentiary hearing on the Debtor’s Motion to Convert, Jack testified that

Debtor possessed a 20% interest in the Joint Venture, with he and the other Defendants owning the

remaining 80% interest in the Joint Venture.

Sometime after the 2016 Tax Return was filed, Jack unilaterally decided to remove Debtor

from the Joint Venture. Debtor’s 2017 Tax Return, filed on August 20, 2018 (one day prior to the

petition date), does not reflect any business interest.

Debtor was not compensated for the termination and transfer of her 20% interest in the Joint

Venture. Indeed, the Debtor received nothing for the loss of her 20% interest in the Joint Venture.

Debtor did not disclose her interest in the Joint Venture in her bankruptcy petition or at the

341 Meeting of Creditors.

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In its August 17, 2021, Memorandum and Opinion, this Court made the following relevant

factual findings:

Debtor owned a 20% interest in a real estate venture with her parents

and sister (the “Joint Venture”). With this ownership interest, the

Debtor was able to claim the Joint Venture’s business losses to offset

her income on her federal income taxes. Doing so resulted in the

Debtor paying little to no income taxes for several years. When asked

about the Joint Venture, the Debtor claimed no knowledge, which

was consistent with her testimony to the majority of questions asked

of her.

Jack Wood testified under oath regarding the Debtor’s tax returns and

deductions. He responded “Yes, that was a joint venture between my

wife, myself, Jennifer, and [the Debtor].” Later, he was specifically

asked “Is the business a joint venture?” To which, Jack Wood

responded “Yes.”

Jack Wood also testified that, after problems developed between the

Debtor and Gerstenecker, he decided he did not want the Debtor to

continue in the Joint Venture. Consequently, he unilaterally removed

the Debtor from the Joint Venture. He further stated that he did not

discuss removing the Debtor from the Joint Venture prior to taking

those actions. Later during his testimony, when asked by the Court to

clarify the notations on the Debtor's tax returns reflecting percentages

between the Defendants and the Debtor, Jack Wood testified that the

handwritten notations were the “division of the joint venture.”

***

Following the evidentiary hearing, on May 15, 2019, the Court

entered its Memorandum and Order denying the Debtor’s Motion to

Convert. In its ruling, the Court cited to the Debtor’s tax returns,

wherein she claimed a 20% interest in the Joint Venture. The Court

further found that Jack Wood confirmed this ownership interest of the

Debtor in the Joint Venture. The Court also found that the Debtor

was divested of this interest as a result of a unilateral decision of Jack

Wood. The Debtor received nothing in return for giving up her

interest in the real estate business. Mr. Wood did not feel the Debtor

was entitled to any compensation for removing the Debtor from the

Joint Venture.

***

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Jack Wood, pro se and as Counsel for Margaret and Jennifer Wood,

filed an answer on February 7, 2020. In that answer, the Defendants

admitted the allegations of paragraphs 33-36 [of Trustee’s

Complaint], among others. In other words, the Defendants confirmed

what was testified to at the evidentiary hearing on the Motion to

Convert — that the Debtor owned a 20% interest in the Joint

Venture. The Defendants denied the allegation in ¶37, that the Debtor

was not compensated for the termination of her interest. The meaning

being that the Defendants asserted the Debtor was compensated for

her interest.

Wheatley v. Wood (In re Wood), Nos. 18-32555, 19-3041, 2021 Bankr. LEXIS 2231,

at * 4-9 (Bankr. W.D. Ky. Aug. 17, 2021).

SUMMARY JUDGMENT STANDARD

Federal Rule of Civil Procedure 56(c), made applicable to bankruptcy proceedings by

Bankruptcy Rule 7056, provides that a court shall render summary judgment:

if the pleadings, depositions, answers to interrogatories, and

admissions on file, together with the affidavits, if any, show that there

is no genuine issue as to any material fact and that the moving party

is entitled to a judgment as a matter of law.

The party moving the Court for summary judgment bears the burden of showing that “there is no

genuine issue as to any material fact and that [the moving party] is entitled to judgment as a matter

of law.” Jones v. Union County, 296 F.3d 417, 423 (6th Cir. 2002). See generally Celotex Corp.

v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Once the moving party meets

that burden, the nonmoving party “must identify specific facts supported by affidavits, or by

depositions, answers to interrogatories, and admissions on file that show there is a genuine issue for

trial.” Hall v. Tollett, 128 F.3d 418, 422 (6th Cir. 1997). In determining the existence or

nonexistence of a material fact, a court will view the evidence in a light most favorable to the

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nonmoving party. Tennessee Dep't of Mental Health & Mental Retardation v. Paul B., 88 F.3d

1466, 1472 (6th Cir. 1996). Absent such evidence from the nonmoving party in a motion for

summary judgment, the Court need not comb the entire record to determine if any of the available

evidence could be construed in such a light. See In re Morris, 260 F.3d 654, 665 (6th Cir. 2001)

(holding that the “trial court no longer has the duty to search the entire record to establish that it is

bereft of a genuine issue of material fact”).

ANALYSIS

I. Count I: Avoidance and Recovery of Bank Transfers Under § 544(b)

As stated above, the Trustee seeks to avoid these prepetition transfers as either preferential

transfers or as fraudulent transfers. In Count I of the Complaint, Trustee seeks avoidance of the

bank transfers to the Defendants by exercising his "strong arm" powers under § 544(b)(1), which

authorizes a trustee to "avoid any transfer of an interest of the debtor in property or any obligation

incurred by the debtor that is voidable under applicable law by a creditor holding an unsecured claim

that is allowable under section 502 of this title . . . ." 11 U.S.C. § 544(b)(1).

To avoid a transfer under § 544(b)(1), "the trustee must prove by a preponderance of the

evidence that there is ‘(1) [a] creditor, (2) holding an allowable unsecured claim; and (3) a transfer

of an interest of the debtor in property, (4) that is voidable under applicable [state] law.'" Lyon v.

Eiseman (In re Forbes), 372 B.R. 321, 330 (B.A.P. 6th Cir. 2007). "Essentially, this provision

permits the trustee to ‘stand in the shoes' of an unsecured creditor and assert causes of action under

state fraudulent conveyance laws for the benefit of all creditors." Spradlin v. E. Coast Miner, LLC

(In re Licking River Mining, LLC), 603 B.R. 336, 364 (Bankr. E.D. Ky. 2019). In this case, the

Trustee is "standing in the shoes" of Gerstenecker, an undisputed creditor of the Debtor.

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As for the first two elements, Gerstenecker received the final Alabama Judgment on

September 11, 2017. By virtue of the Alabama Judgment, Gerstenecker is an unsecured judgment

creditor holding an allowable claim under § 502. The transfers from the bank accounts occurred on

August 21, 2017. Thus, Gerstenecker was a creditor holding an allowable unsecured claim at the

time the transfers were made.

With respect to the third element, there is no question that the transfer was a transfer of an

interest of the debtor in property. The Debtor owned an interest in the bank account funds. To some

degree, the bank accounts were funded by the Debtor's tax refunds. While the Defendants, and

specifically Jack and Margaret Wood, may have been the source for the other funds, the Debtor had

access to all of the funds and, on occasion, used the funds to pay her personal debts.

Turning to the fourth element, the Trustee must establish that the transfer is voidable under

state law. Under the Kentucky Uniform Voidable Transactions Act, a transfer is voidable as to a

creditor whose claim arose prior to the transfer if: (1)(a) debtor did not receive reasonably equivalent

value in exchange for the transfer and (b) the debtor was at the time or became insolvent as a result

of the transfer; or (2) the transfer was made to an insider for an antecedent debt, the debtor was

insolvent at that time, and the insider had reasonable cause to believe the debtor was insolvent. KRS

§ 378A.050(1), (2).

Here, the transfers from the bank accounts qualify under either section of § 378A.050. First,

under § 378A.050(1), Gerstenecker's claim arose prior to the transfer. The Debtor did not receive

reasonably equivalent value. Indeed, the Debtor received nothing from the transfer of these assets.

There can also be no question as to the Debtor's solvency at the time the transfers were made.

Debtor possessed no other material assets, and, as shown in her original bankruptcy schedules, the

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Debtor's monthly expenses exceeded her income by over $981. Debtor was insolvent at the time the

transfers were made.

With the findings of insolvency and no reasonably equivalent value, the Trustee has

satisfied the requirements of § 378.050(1). The Court also finds that the requirements of §

378.050(2) are also met.

Jack and Jennifer are family members of the Debtor and qualify as insiders. The Defendants

admitted in their answer that the transfers were made on account of an antecedent debt. As stated

above, the Debtor was insolvent at the time of the transfers. Because Jack completed Debtor's 2016

and 2017 Tax Returns, he was familiar with her financial situation. As such, the Defendants were

intimately aware of the Debtor's financial insolvency.

The Court concludes the Trustee is entitled to summary judgment on Count I of his

complaint, avoiding the transfers from the bank accounts under § 544(b).

II. Avoidance of Preferential Bank Transfers Under § 547

Count II of the Complaint seeks to avoid and recover the preferential bank transfers made

to insiders under § 547. In an action based upon § 547, the “Plaintiff bears the burden of proving

by a preponderance of the evidence each element of a preferential transfer under § 547(b).” In re

Nelson, 419 B.R. 338, 340 (Bankr. W.D. Ky. 2009) (citing § 547(g)). Section 547(b) allows a

trustee to avoid any preferential transfer of an interest of the Debtor’s property. “To qualify as a

voidable preference, a transfer must ‘(1) benefit a creditor; (2) be on account of antecedent debt; (3)

be made while the debtor was insolvent; (4) be made within 90 days before bankruptcy [or one year

if transfers were to insiders]; and (5) enable the creditor to receive a larger share of the estate than

if the transfer had not been made.’” In re Carled, Inc., 91 F.3d 811, 813 (6th Cir. 1996) (quoting

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Union Bank v. Wolas, 502 U.S. 151 (1991)).

The Trustee alleges that the undisputed facts establish all the elements necessary to enable

the Trustee to avoid the transfers from the bank accounts. The Court agrees. During the one-year

period prior to the Petition Date, Debtor possessed an interest the funds in the closed bank accounts.

Thus, the transfers to the insider Defendants were of an interest of the Debtor in property. The

Defendants admitted these transfers were to a creditor on behalf on an antecedent debt in their

answer. Jack and Jennifer transferred $47,701.28 from the bank accounts to newly created bank

accounts jointly titled in their names. The Debtor's bankruptcy schedules evidence she was

insolvent at the time of the transfers. Finally, these transfers allowed the Defendants to receive more

than if the transfers had not been made. Thus, Trustee is entitled to avoid the bank transfers and

recover from Defendants $47,701.28 under § 547(b).

III. Avoidance of Bank Transfers Under § 548

Count III seeks avoidance of the bank account transfers under § 548. Under § 548 of the

Bankruptcy Code, the Trustee may recover as a fraudulent transfer, any transfer made by a debtor

within two years of the petition date, if the debtor:

(A) made such transfer or incurred such obligation with actual intent

to hinder, delay, or defraud any entity . . .; or

(B)(i) received less than a reasonably equivalent value in exchange

for such transfer or obligation; and

(ii)(I) was insolvent on the date that such transfer was made or such

obligation was incurred, or became insolvent as a result of such

transfer or obligation.

11 U.S.C. § 548. See also In re Grove-Merritt, 406 B.R. 778, 789 (Bankr. S.D. Ohio 2009). The

Trustee asserts that the transfers of the bank accounts by the Debtor to the Defendant are subject to

11

avoidance as both actual fraudulent transfers, i.e. made with the actual intent to hinder, delay, or

defraud creditors, and constructively fraudulent, i.e. for less than reasonably equivalent value. The

Trustee has the burden of proof as to all the required elements of these claims. Baumgart v. Bedlyn,

Inc. (In re Empire Interiors, Inc.), 248 B.R. 305, 307 (Bankr. N.D. Ohio 2000).

To set aside the transfers of the Debtor's interests in the bank accounts as actual fraudulent

transfers, the Trustee must show that the transfers were made with the “actual intent to hinder, delay

or defraud” the Debtor's creditors. 11 U.S.C. § 548(a)(1)(A). Intent must be established by the lower

preponderance of the evidence standard. “Because proof of actual intent to hinder, delay or defraud

creditors may rarely be established by direct evidence, courts infer fraudulent intent from the

circumstances surrounding the transfer.” Schilling v. Heavrin (In re Triple S. Rests., Inc.), 422 F.3d

405, 416 (6th Cir.2005). Such circumstances are reflected in the factors that are often referred to

as the “badges of fraud.” Id.

Unlike most cases, the Court does not need to look to badges of fraud. The Defendants

admitted that the transfers were made to the avoid Gerstenecker’s impending final judgment against

the Debtor. This was admitted in both the Answer filed by the Defendants, and by Jack Wood in

his testimony at the Motion to Convert. During the hearing on the Motion to Convert, Jack testified

that the Debtor "received the judgment of the Supreme Court in Alabama" and "any account with

her name on it was going to be garnished."

The Court finds that the Trustee has met his burden of showing that these transfers were

made with fraudulent intent. Thus, the burden shifted to the Defendants to prove the absence of

fraudulent intent and a legitimate purpose for the transfer of the funds. Silagy v. Gagnon (In re

Gabor), 280 B.R. 149, 157 (Bankr. N.D. Ohio 2002). The Defendants failed to meet this burden.

12

To set aside the transfers of the Debtor's interests in the bank accounts as constructively

fraudulent, the Trustee must establish by a preponderance of the evidence that the Debtor received

less than reasonably equivalent value in exchange for the challenged transfers and at least one of the

following: a) the Debtor was insolvent at the time of the relevant transfer or became insolvent as

result of the transfer; b) the Debtor was engaged in a business or a transaction for which her property

remained unreasonably small in relation to the business or transaction; c) or the Debtor intended to

incur, or believed or reasonably should have believed that she would incur debts beyond her ability

to pay. 11 U.S.C. § 548(a)(1)(B); In re Fordu, 201 F.3d 693 (6th Cir. 1999). In determining

whether a transfer is supported by reasonably equivalent value, courts generally compare the value

of property transferred with that which is received in exchange for the transfer. Id. at 707.

The Court finds the Trustee has satisfied his burden with respect to this claim as well. Since

the Debtor received nothing for these transfers, there is no question that she received less that

reasonably equivalent value. Likewise, as stated above, the Debtor was insolvent at the time of the

relevant transfers. The Debtor possessed no material assets and her income was insufficient to meet

her regular expenses.

With these conclusions, the Court finds that summary judgment should be granted to the

Trustee with respect to Count III as to the bank account transfers.

IV. Avoidance of Joint Venture Transfer Under § 548

In Count IV, the Trustee seeks to avoid the transfer of the Debtor’s ownership interest in the

Joint Venture under § 548. As stated earlier, the Court has previously held, and the Defendants have

admitted in their answer, that the Debtor was a 20% interest holder in the Joint Venture. This

finding was further supported by the Debtor’s tax returns, prepared by Jack Wood, wherein she

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claimed losses on her income tax returns due to the Joint Venture.

As evidenced by the Debtor’s 2016 tax return, the Debtor held a 20% interest in the Joint

Venture. Between 2016 and 2017, the Debtor’s interest in the Joint Venture was transferred to the

Defendants. The Trustee now seeks to avoid this transfer as a fraudulent transfer under § 548. The

same tests and analysis as set forth above regarding the bank accounts also applies to this transfer

of the Debtor’s interest in the Joint Venture.

Like the bank account transfers, this transfer of the interest in the Joint Venture qualifies as

both an actual fraudulent transfer, i.e. made with the actual intent to hinder, delay, or defraud

creditors, and a constructively fraudulent transfer, i.e. for less than reasonably equivalent value.

Like with the bank account transfers, to set aside the transfers of the Debtor's interests in the

Joint Venture, the Trustee must show that the transfers were made with the “actual intent to hinder,

delay or defraud” the Debtor's creditors. 11 U.S.C. § 548(a)(1)(A).

As before, the Court need not rely on any badges of fraud because the Defendants admitted

such fraudulent intent. During the hearing on the Motion to convert, when testifying about the

Debtor’s interest in the Joint Venture, Jack Wood testified as follows:

At that time, we had decided that we didn't want Julie in the joint

venture. She wasn't contributing and she had gotten the lawsuit in

Alabama had been finalized by the Supreme Court of Alabama ... .

Clearly, the transfer was made with the intent to defraud or hinder Gerstenecker’s attempts to collect

her soon to be finalized judgment. Like the transfer of the bank account funds, the transfer of the

Debtor’s interest in the Joint Venture was simply part of the plan conceived of by the Defendants

to prevent Gerstenecker from collecting the debt owed to her by the Debtor.

The Trustee also met his burden of showing that these transfers were constructively

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fraudulent. Like the bank account transfers, the Debtor received nothing for the transfer of her

interest in the Joint Venture. The Debtor simply went from a 20% holder to an outsider with no

interest in the Joint Venture. No consideration was paid by Defendants to the Debtor for this taking

of her interest. Plus, as previously found, this transfer was made while the Debtor was insolvent.

Finally, the Defendants failed to rebut the proof of fraudulent intent. Consequently, the Court finds

that summary judgment should be granted in favor of the Trustee with respect to Count IV as to the

transfer of the interest in the Joint Venture.

Count V. Avoidance of the Bank Transfers under the Kentucky Uniform Voidable

Transactions Act

The Court now turns to Count V of the Complaint wherein the Trustee seeks to avoid the

trasfers of the Bank Accounts under the Kentucky Uniform Voidable Transactions Act

(“KYUVTA”). Analysis of this section was addressed in the discussion regarding Count I, supra.

Based upon that analysis, the Court finds that summary judgment should be granted in favor

of the Trustee on Count V as well.

Count VI. Avoidance of the Transfer of the Business Interest Under KYUVTA

Under the KYUVTA, a transfer is voidable as to a creditor whose claim arose prior to the

transfer if: (1)(a) debtor did not receive reasonably equivalent value in exchange for the transfer and

(b) the debtor was at the time or became insolvent as a result of the transfer; or (2) the transfer was

made to an insider for an antecedent debt, the debtor was insolvent at that time, and the insider had

reasonable cause to believe the debtor was insolvent. KRS § 378A.050(1), (2).

As with the bank account transfers, the Trustee has met his burden with respect to the

transfer of the Joint Venture and the KYUVTA. As found previously, and stated above, the Debtor

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received nothing for the transfer of her 20% in the Joint Venture. Finding that the Debtor did not

receive reasonably equivalent value in exchange for the interest in the Joint Venture is not a difficult

conclusion to make when the Debtor received nothing for the transfer. Additionally, the solvency

of the Debtor cannot be questioned when examining the Debtor’s bankruptcy sworn schedules.

Finally, this transfer of the Debtor’s interest in the Joint Venture was made to insiders, family

members of the Debtor. With these conclusions in mind, the Court finds that summary judgment

should be granted in the Trustee’s favor as to Count VI.

In the Defendants’ Objection to the Motion for Summary Judgment, the Defendants

make the argument that several of the facts relied upon by the Trustee are actually in dispute. The

Defendants are incorrect in their assessment of these facts. The allegedly “disputed” facts were

admitted to by the Defendants in their answer. While it is true that the Defendants moved to amend

their answer, to remove their admissions, that motion to amend was denied by the Court by order

entered October 12, 2021. At this point in time, those admissions are still valid and the Defendants

are bound by their admissions. The Court finds that all of the “disputed” facts asserted by the

Defendants have been either admitted to in their answer, testified to in the previous hearings, or

found by the Court in previous rulings.

CONCLUSION

The Trustee has met his burden of proving by a preponderance of the evidence each element

of a preferential transfer under § 547(b) and voidable transfers under § 544(b), § 548, and KRS

§ 378A.050. Further, it has been conclusively established that Defendants have not met and cannot

meet their burden of overcoming the undisputed facts or presenting any affirmative defenses to the

transfers. As such, the Court will grant the Trustee’s Motion for Partial Summary Judgment and will

16

enter judgment in the Trustee’s favor and against Defendants as follows:

(a) Counts I, II, III, and IV in the amount of $47,701.28, the value of the Bank Transfers from the

Closed Accounts;

(b) Counts III and VI in an amount equal to the value of Debtor’s 20% interest in the Joint Venture;

(c) The value of the transfers be preserved for the estate;

The trial in this matter currently set for January 12, 2022, shall proceed as an evidentiary

hearing solely on the issue of the value of the Debtor’s 20% interest in the Joint Venture. A separate

order will be entered in accordance with this Memorandum.

ble 0. Sito

United States Bankruptcy Judge

Dated: December 7, 2021

17

UNITED STATES BANKRUPTCY COURT

WESTERN DISTRICT OF KENTUCKY

)

In re: )

)

JULIE MARIE WOOD ) CASE NO. 18-32555

)

Debtor )

)

MICHAEL WHEATLEY, )

Plaintiff )

Vv ) A. P. NO. 19-3041

JACK D. WOOD, JENNIFER D. WOOD, and )

MARGARET WOOD )

Defendant )

ORDER

Pursuant to the Court's Memorandum entered this same date and incorporated herein by

reference, and the Court being otherwise sufficiently advised,

IT IS HEREBY ORDERED AND ADJUDGED that the Trustee’s Motion for Partial

Summary Judgment is GRANTED and judgment is granted in the Trustee’s favor on Counts I, II,

III, and IV in the amount of $47,701.28, the value of the bank account transfers.

IT IS FURTHER ORDERED AND ADJUDGED that the judgment is granted in the

Trustee’s favor with respect to Counts II] and VI in an amount equal to the value of Debtor's 20%

interest in the Joint Venture.

IT IS FURTHER ORDERED that the trial in this matter currently set for January 12, 2022,

shall proceed as an evidentiary hearing solely on the issue of the value of the Debtor's 20% interest

in the Joint Venture.

Alan C. Stout