Allred v. Nickeson

UNITED STATES BANKRUPTCY COURT

DISTRICT OF SOUTH DAKOTA

In re: ) Bankr. No. 13-10137

) Chapter 7

JAMES LEE NICKESON )

SSN/ITIN xxx-xx-8970 )

)

Debtor. )

)

FORREST C. ALLRED, TRUSTEE ) Adv. No. 14-1004

)

Plaintiff )

-vs- )

)

CAMILLE NICKESON; ) DECISION RE: CROSS-MOTIONS

LEE NICKESON; ) FOR PARTIAL SUMMARY JUDGMENT

JAMES L. NICKESON FARMS, INC.; )

and LLJ, LLP )

)

Defendants. )

The matters before the Court are Trustee-Plaintiff Forrest C. Allred's Motion for

Partial Summary Judgment and Defendants Camille Nickeson and James L. Nickeson

Farms, Inc.'s Motion for Partial Summary Judgment. These are core proceedings

under 28 U.S.C. § 157(b)(2). The Court enters these findings and conclusions

pursuant to Fed.R.Bankr.P. 7056 and Fed.R.Civ.P. 56(a). For the reasons discussed

below, the Court will deny both motions.

I.

James L. Nickeson Farms, Inc. ("Farm Corporation")1 was incorporated in 2002.

1In his chapter 11 case, Debtor referred to "James L. Nickson [sic], Farms, Inc."

on schedule B and "Nickeson Farms, Inc." on schedule H. Debtor's amendment to

schedule H in his chapter 11 case added "James L. Nickeson Farms" as a co-debtor,

but did not delete the references on his original schedule H to "Nickeson Farms, Inc."

In Debtor's chapter 7 case, he includes "James L. Nickeson Farms, Inc." on schedule

Its articles of incorporation authorized it to issue 15,000 shares with a par value of

$100.00 per share "fully paid and nonassessable[.]" James Lee Nickeson ("Debtor")

was the lone incorporator and sole director.2

Debtor filed a chapter 11 petition in bankruptcy on December 3, 2009, Bankr.

No. 09-10263 (D.S.D.). According to his chapter 11 schedules, his assets were worth

$646,300.00, while his liabilities totaled $5,146,441.69. On his schedule of personal

property, Debtor stated he owned 15,000 shares in Farm Corporation with an

B, "JLN Farms" on schedule D, "JLN Farms, Inc." on schedule H, and "Nickeson

Farms," "James L. Nickeson Farms, Inc.," "JLN Farms, Inc.," and "JLN Farms" on his

statement of financial affairs. Corporate records for James L. Nickeson Farms, Inc.

indicate Nickeson Farms, Inc. was a separate corporation that transferred substantial

assets to James L. Nickeson Farms, Inc. on June 22, 2002 in exchange for 15,000

shares in James L. Nickeson Farms, Inc., and then Nickeson Farms, Inc. immediately

transferred the 15,000 shares in James L. Nickeson Farms, Inc. to Debtor personally

for unknown consideration. In Debtor's present chapter 7 case, a few documents,

including some cancelled checks, indicate Lee Nickeson, Debtor's son, may have used

"Nickeson Farms" (no "Inc." included) as a business name. For the present, the Court

assumes the various abbreviated corporate references, excluding Nickeson Farms and

Nickeson Farms, Inc., are abbreviations of James L. Nickeson Farms, Inc., which is

referenced as "Farm Corporation" herein. The parties may and should clarify the

record at trial regarding what is "Nickeson Farms," whether Nickeson Farms, Inc. is

still active, and if so, who holds the equitable interests in it.

2In light of the included cover memo from Farm Corporation's local counsel, the

exhibit at docket entry 105-3 appears to be the complete corporate book for Farm

Corporation, though the firm's Bates stamp numbering is puzzling. The corporate book

does not indicate an annual meeting was actually held annually. A handwritten note

on a second and third copy in the exhibit of the regular board of directors meeting

minutes dated December 22, 2006 (Bates stamps Delaney 00324 and Delaney 00332)

indicates multiple years' minutes may have been created or intended to have been

created simultaneously, out of time. Minutes in this exhibit of annual meetings of the

shareholder dated December 22, 2006 and July 25, 2009 indicate Debtor and Camille

Nickeson were both elected directors, though Farm Corporation's Articles of

Incorporation have always provided for one director and the corporation's by-laws

provided for one director until January 7, 2011. See also infra note 4.

unknown value.

Debtor's original disclosure statement in his chapter 11 case did not reference

his wife Camille Nickeson, except as to an attached February 7, 2007 balance sheet

for Farm Corporation she had signed.3 The original disclosure statement also did not

reference Central Livestock Association Inc. or Genex Cooperative, Inc. (collectively

"Genex") as specifically holding a secured or an unsecured claim to be paid through

the plan. Two objections to Debtor's original disclosure statement were filed,

including one by Genex, which identified itself as holding 80% or more of the

unsecured claims in the chapter 11 case. After a hearing, Debtor was ordered to set

forth the resolution of the objections in an amended disclosure statement, which the

parties in interest were given an opportunity to review before Debtor filed it. Debtor

eventually filed the amended disclosure statement, and the Court approved it on

December 22, 2010.

In the amended disclosure statement, where claims were described, Debtor

added a reference to Genex:

Class 14 is the partially secured/unsecured claim of Central Livestock

Association/Genex Cooperative, Inc. in the amount of $1,717,742.46,

plus accrued interest through the date of the commencement of the case.

This claim is to be paid pursuant to the Stipulation of the parties as

shown in Exhibit H. It is estimated that these creditors are receiving a

distribution roughly equal to a present value of $.20 on the dollar.

3The pre-printed form is labeled "Agricultural Balance Sheet" and the inserted

name of the "Borrower" is Farm Corporation. In the disclosure statement, Debtor

refers to it as a financial statement for him and his wife and further states:

"Numerous assets on the balance sheet belong to the Debtor's spouse and are not

property of the Estate."

In another section of the amended disclosure statement entitled "Means for Execution

of the Plan," Debtor added:

The Debtor’s spouse intends to sell $100,000 worth of Gold investments

she owns. These funds will be paid to James Nickeson Farms. Nickeson

Farms will then pay the $220,000 to Genex. James Nickeson Farms will

issue stock to Debtor’s spouse which will reduce the value of Debtor’s

stock.

To the amended disclosure statement, Debtor attached the same February 7,

2007 balance sheet for Farm Corporation, which indicated Farm Corporation had a net

worth of $5,484,012.00. The balance sheet also stated Farm Corporation owned

$65,000.00 worth of gold, $6,500.00 worth of silver, and $120,000.00 worth of art

prints and guns. Another attachment to the amended disclosure statement was

Debtor's liquidation analysis. As had the one attached to Debtor's original disclosure

statement, this liquidation analysis did not assign a value to Debtor's interest in Farm

Corporation. Rather, therein Debtor enigmatically stated, "[The value of Farm

Corporation] is being utilized to generate income to pay unsecured creditors. A

liquidation of Nickeson Farm would result in negative income taxes."

Debtor also attached to the amended disclosure statement a new document

entitled "Stipulation for Plan Treatment of the Pre-petition Secured and Unsecured

Claims of [Genex]." In it, Debtor and Genex acknowledged Genex had a judgment

against Debtor, R&J Dairy, and Richard Millner for $1,717,742.46 and agreed Genex

would be paid a total of $550,000.00 on that debt, with $220,000.00 to be paid by

January 15, 2011 and the balance to be paid in annual installments $30,000.00 for

several years. The stipulation further provided:

c. Debtor (and the Debtor’s spouse to the extent she asserts any

interest in such property) shall grant Genex a security

interest/mortgage on all real estate, farming equipment, farm

products, claims, accounts receivable, inventory, general intangibles,

business tort claims and all other business assets owned by Debtor

or in which the Debtor has any interest, including but not limited to

any real property or personal property that the Debtor has transferred

or attempted to transfer to the Debtor’s son or to other family

members, which property or personal property, if not currently 100%

owned by the Debtor, shall either be returned and transferred to the

Debtor, or the Debtor will make arrangements satisfactory to Genex,

for conveying security interests/mortgages in such property to Genex.

d. As a condition of this agreement, the Debtor shall cause Nickeson

Farms, Inc. ("Nickeson Farms") to execute a guaranty of the Genex

Claim, and shall cause Nickeson Farms to secure such guaranty of the

Genex Claim by granting a security interest/mortgage in all of its

assets to Genex. Genex agrees to release its lien on farm equipment

to the extent reasonably requested by Nickeson Farms, to enable

Nickeson Farms to trade such equipment on new equipment in the

ordinary course of business.

The stipulation also included certain subordination provisions regarding Genex's new

security interests.

Debtor circulated for confirmation the amended disclosure statement and a

modified plan. In the modified plan, Debtor stated:

The Debtor will work for James Nickeson Farms, Inc. and James

Nickeson Farms, Inc. will guarantee the secured debts if this Plan is

confirmed. Farms will transfer sufficient funds to make the payments

required under the Plan for Secured Creditors. For the Unsecured Class

(Class 15), Farms will guarantee that the Class 15 claimants will be paid

the amount they would receive under a Chapter 7, less tax claims and

other liquidations costs.

Attached to the modified plan was the above-described stipulation between Debtor

and Genex. In the modified plan itself, the Court did not find any other reference to

Camille Nickeson. Also, the modified plan referenced Farm Corporation as the

guarantor secured and unsecured claims, while Debtor's stipulation with Genex

referenced Nickeson Farms, Inc. as the guarantor for Genex's claim.

According to the January 7, 2011 minutes from a special meeting of Farm

Corporation's board of directors, directors Debtor and Camille Nickeson approved an

amendment to the corporation's articles of incorporation.4 Under the amendment,

Farm Corporation would have authority to issue 75,000 shares, rather than just

15,000. Again, each share was to have a par value of $100.00 "fully paid and

nonassignable[.]" According to the same January 7, 2011 board meeting minutes, the

Farm Corporation's by-laws were amended to increase the number of directors from

one to two. The board minutes further provided, "Camille Nickeson stated that she

had contributed cash to the corporation in the sum of $133,000.00 in return for the

issues of 60,000 shares of the capital stock of the Corporation." The board's

attendant formal resolution provided Farm Corporation could issue the 60,000 shares

to Camille Nickeson upon receipt of the stated consideration. Shareholder minutes of

the same date, signed by both Debtor and Camille Nickeson, accepted the board's

4Farm Corporation's original articles of incorporation provided for one director.

When Farm Corporation's board of directors held the special meeting on January 7,

2011 to consider whether to amend the articles of incorporation to increase the

number of available shares and also whether to amend the by-laws to increase the

number of directors from one to two, the minutes erroneously identified both Debtor

and Camille Nickeson as directors who were voting that day, though the board had

only one authorized director position at the time. The board also did not concomitantly

amend the "one director" provision in its articles of incorporation. A similar error was

made regarding the minutes of Farm Corporation's shareholders on January 7, 2011.

The minutes recognized Camille Nickeson as a voting shareholder, but Debtor was

then the lone existing shareholder who first needed to vote to increase the available

shares by 60,000, which would then be issued to Camille Nickeson.

change to the articles of incorporation and the change to the by-laws. Debtor

continued as Farm Corporation's president and treasurer; Camille Nickeson served as

its secretary.

With this planned transfer, Camille Nickeson would own 80% of the available

shares in Farm Corporation. Debtor's interest would drop from 100% to 20%.

In an August 22, 2013 state court deposition, Camille Nickeson initially

indicated she did not know why Farm Corporation's available shares were increased

from 15,000 to 75,000. In the same deposition, she later stated it was done because

"[Debtor] needed to pay Central Genex money that was a, I don't know if it was a

lawsuit or what it was, and the corporation couldn't pay it, [Debtor] didn't have the

money, so I said I would, but I would have to have extra shares, I would have to be

a bigger share in the corporation in order to do that." She further acknowledged the

Genex debt was personal to Debtor, not the corporation.

In a July 29, 2013 state court deposition, Debtor testified the source of the

$133,000.00 Camille Nickeson used to purchase the 60,000 shares was an

inheritance from her father. In her August 22, 2013 state court deposition, however,

Camille Nickeson said about $81,000.00 of the funds came from the inheritance,

savings, and a loan from Debtor's and her son Lee Nickeson, and the balance came

from gold. Camille Nickeson stated in her deposition she received the gold from

Debtor, who had been collecting gold coins for years. Camille Nickeson further stated

Farm Corporation eventually carried the gold on its books as an asset, Debtor then

gave the gold to her, and she subsequently used the gold to purchase the 60,000

shares from Farm Corporation. Camille Nickeson said she did not pay for the gold.

In her amended answer in the instant adversary proceeding, Camille Nickeson provided

a different scenario: She said she obtained the funds to purchase the 60,000 shares

via two "loans" from Lee Nickeson totaling $79,375.00 "and the remainder of the

funds came from inheritances . . . received from her father."5 Camille Nickeson and

Lee Nickeson did not produce any documentation for the claimed loans from Lee

Nickeson to Camille Nickeson.

Bank records provide another picture. On January 11, 2011, Camille Nickeson

deposited $117,472.00 in her bank account, which resulted in a balance of

$135,179.72. Three checks comprised the deposit: a check from an insurance

company for $38,097.00 dated January 4, 2011 payable to Farm Corporation and

Debtor and two checks from Nickeson Farms and Lee Nickeson to Camille Nickeson

totaling $79,375.00; one dated January 7, 2011 and another dated January 11,

2011.6 Camille Nickeson then wrote a check to Farm Corporation for $133,000.00

on January 12, 2011, and it was deposited into the Farm Corporation's account on

that day. Thus, about 29% of the $133,000.00 Camille Nickeson transferred to Farm

Corporation was already Farm Corporation's funds, and Lee Nickeson and Nickeson

Farms, not Camille Nickeson, supplied just over 59% of the $133,000.00. The source

5If $79,375.00 of the $133,000.00 came from loans from Lee Nickeson, that

left $53,625.00 to come from Camille Nickeson's inheritance. However, in her

August 22, 2013 deposition, Camille Nickeson testified the inheritance from her father

was only $12,000.00.

6"Nickeson Farms" (no "Inc." included) and "Lee J. Nickeson" were printed on

the checks as the drawers or account holders. See supra note 1.

of the initial $17,707.72 in Camille Nickeson's account, prior to the January 2011

deposits, and the source of the $79,375.00 transferred from Lee Nickeson and

Nickeson Farms to Camille Nickeson are unknown.

Of the transactions discussed by Camille Nickeson in her August 22, 2013 state

court deposition, her amended answer in this adversary proceeding, and her bank

account records, none match Debtor's chapter 11 amended disclosure statement,

where Debtor said Camille Nickeson would use $100,000.00 of gold she owned to

acquire shares in Farm Corporation.

Only the Internal Revenue Service objected to Debtor's modified plan, and only

one unsecured creditor balloted against it. After a hearing, the Court confirmed the

modified plan and directed Debtor to file a Plan as Confirmed to incorporate the

resolution of the Internal Revenue Service's objection. The confirmation order and the

Plan as Confirmed were entered February 7, 2011.

On February 16, 2011, Farm Corporation filed the amendment to its articles of

incorporation with the South Dakota Secretary of State. This amendment reflected

the January 7, 2011 board decision to increase the available shares from 15,000 to

75,000. According to a balance sheet provided to Great Plains Bank, Farm

Corporation had a net worth of $851,209.00 on March 24, 2011.

On August 26, 2011, Debtor gave a security interest in various assets to

Genex, as had been discussed in his plan. The security agreement's clause setting

forth the collateral did not specifically reference Debtor's shares in Farm Corporation.

Instead, it provided:

[Debtor] hereby grants to [Genex], to secure the payment and

performance in full of all of the Obligations, a security interest in the

following properties, assets and rights of [Debtor], wherever located,

whether now owned or hereafter acquired or arising, and all proceeds

and products thereof (all of the same being hereinafter called the

"Collateral"): all farming equipment and machinery, Farm Products,

claims, accounts receivable, inventory, general intangibles, business tort

claims, and all other business and agricultural assets owned by [Debtor]

or in which [Debtor] has an interest, including [Debtor]'s art collection

and gun collection. Without limitation of the foregoing, the Collateral

shall include the claims described on Exhibit 4.5.7

In contrast, the U.C.C. Financing Statement filed by Genex on September 22, 2011

did specifically reference Farm Corporation stock as part of the collateral Debtor

pledged to Genex.

When Debtor signed this security agreement with Genex, Farm Corporation's

"STOCK TRANSFER LEDGER" recognized Debtor as the sole shareholder. Though the

special board meeting minutes dated January 7, 2011 provided Farm Corporation was

authorized to issue 60,000 shares to Camille Nickeson "upon receipt by [Farm]

Corporation of the consideration set forth [in the stock subscriptions]," as of

August 26, 2011, Farm Corporation had not recorded Camille Nickeson as a

shareholder or issued a stock certificate to anyone.8

7Defendants Camille Nickeson and Farm Corporation did not provide Exhibit 4.5

as part of the documents in support of their motion for partial summary judgment.

8A particular by-law required Farm Corporation's stock certificates to be

consecutively numbered. The certificate for the 2,250 shares Debtor retained after

he transferred 12,750 shares to Camille Nickeson has number "1" on it, and Camille

Nickeson's certificate for her total 72,750 shares has number "2" on it. Thus, it

appears Farm Corporation never issued a certificate to either Nickeson Farms, Inc. or

Debtor for the original 15,000 shares, though the stock transfer ledger reflected their

ownership.

As part of Debtor's agreement with Genex, Camille Nickeson signed a document

entitled "Consent and Grant to Security Agreement," also dated August 26, 2011.

The document said Debtor transferred his gold and silver collection to Camille

Nickeson, she sold it for cash, and then she "used the cash to pay, at least in part,"

Debtor's $220,000.00 commitment to Genex. Therein, Camille Nickeson said she

received in return 80% of the "outstanding stock" in Farm Corporation. This

statement, like the others discussed above, did not jibe with the transfers in and out

of Camille Nickeson's bank account, but was an acknowledgment by Camille Nickeson

that her personal funds were not the exclusive source for her obtaining an 80%

interest in Farm Corporation.

On October 28, 2011, Debtor transferred 12,750 of his original 15,000 shares

of Farm Corporation to Camille Nickeson for $28,305.00. Though at her August 22,

2013 state court deposition Camille Nickeson could not recall details regarding this

transfer, account records indicate Camille Nickeson paid for these shares by two

checks, one for $23,305.00 dated October 28, 2011 and cashed December 13, 2011

and a second for $5,000.00 dated November 9, 2011 and cashed November 14,

2011. The notation on the November check says "advance on stock." According to

Farm Corporation, the value Camille Nickeson paid for the shares was based on its

February 23, 2010 balance sheet, though it acknowledges it owns real property valued

at $926,410.00 (doc. 83).9 The transfer of the 12,750 shares from Debtor to Camille

9In a letter dated July 8, 2010 (doc. 95-8), counsel for Debtor in his chapter 11

case identified several issues regarding the accuracy or completeness of some of

Debtor's chapter 11 documents and a 2010 balance sheet for either Debtor or Farm

Nickeson was not a specific provision of either Debtor's chapter 11 modified plan or

the attached stipulation with Genex. With this transfer, Camille Nickeson acquired

97% of Farm Corporation's shares, while Debtor retained only a 3% interest, reflecting

another significant decrease from his original 100% ownership.

Camille Nickeson had $780.70 in her checking account on October 25, 2011,

just before she purchased the 12,750 shares from Debtor. One large deposit was

made before she wrote the checks for these shares: A check for $36,368.11 from

Riverview, LLP payable to "Jim L[.] Nickeson Farms, Inc[.]" dated October 24, 2011

was deposited into Camille Nickeson's account on October 27, 2011. Additional

deposits were made into Camille Nickeson's account before both her checks for the

12,750 shares cleared. A check for $10,890.00 dated November 16, 2011 from

Larry Watkins payable to Debtor was deposited in Camille Nickeson's account on

November 18, 2011, with Camille Nickeson receiving $890.00 in cash back. A check

for $4,800.00 dated November 27, 2011 from Roger and Wanda Larson payable to

Debtor was deposited in Camille Nickeson's account on December 2, 2011. Thus, the

record shows Camille Nickeson did not have an interest in any of the three deposits,

and Debtor was already entitled to $15,690.00 of the $28,305.00 Camille Nickeson

"paid" for the 12,750 shares from Debtor. Moreover, though the Court did not

uncover an explanation in the present record, Camille Nickeson did not write checks

to Debtor for his 12,750 shares; she made both checks payable to Farm Corporation.

Corporation. Counsel for Debtor offered various explanations for the issues, but in

essence, the letter highlighted Debtor and his family's lack of regard for corporate

formalities and the shifting landscape of who owned what when.

Debtor assigned the 12,750 shares to Camille Nickeson by document dated

October 28, 2011. Farm Corporation issued stock certificates on October 28, 2011,

one to Debtor for 2,250 shares and another to Camille Nickeson for 72,750 shares.10

The record does not indicate Farm Corporation ever issued a stock certificate to

Camille Nickeson in January 2011, when corporate minutes indicate she was

authorized to receive the first 60,000 shares upon paying for them. Thus, only as of

October 28, 2011 did Farm Corporation's records and issued stock certificates

acknowledge Camille Nickeson's ownership of shares in Farm Corporation.

Farm Corporation provided another balance sheet to Great Plains Bank dated

March 12, 2012. The balance sheet indicated Farm Corporation had a net worth of

$1,129,304.00.

On June 12, 2012, sixteen months after confirmation of a plan, Debtor moved

for dismissal of his chapter 11 case, saying, "[Farm Corporation]'s operating creditor

will not release funds to make payments to the Debtor's priority and unsecured

creditors[,]" and he was thus unable to pay claims. In the motion, Debtor also stated

he was unable to pay the Internal Revenue Service or unsecured creditors because of

insufficient income. No party in interest opposed Debtor's motion, and the Court

dismissed the chapter 11 case on July 9, 2012.

On August 27, 2013, Debtor filed a chapter 7 petition in bankruptcy. Forrest

C. Allred, the case trustee, commenced this adversary proceeding against Camille

10These were the first two certificates Farm Corporation issued, according to

its records (doc. 105-3). See supra note 8.

Nickeson, Lee Nickeson, Farm Corporation, and LLJ, LLP, another formal business

entity in which Debtor or his family held the ownership interests. Trustee Allred's

complaint contains eleven counts, the first four of which are at issue herein. Under

count I, Trustee Allred wants the Court to avoid Debtor's transfer of the 97% interest

in Farm Corporation to Camille Nickeson under 11 U.S.C. § 548(a)(1)(A) because the

transfer was made by Debtor with an actual intent to hinder, delay, or defraud

creditors. Under count II, Trustee Allred wants the Court to avoid Debtor's transfer

of the 97% interest in Farm Corporation to Camille Nickeson under 11 U.S.C.

§ 548(a)(1)(B) because the transfer was made without adequate consideration, i.e.,

was constructively fraudulent. Under count III, Trustee Allred wants the Court to

avoid Debtor's transfer of the 97% interest in Farm Corporation to Camille Nickeson

under 11 U.S.C. § 544(b) and S.D.C.L. § 54-8A-4(a)(1) because the transfer was

made by Debtor with an actual intent to hinder, delay, or defraud creditors. And under

count IV, Trustee Allred wants the Court to avoid Debtor's transfer of the 97%

interest in Farm Corporation to Camille Nickeson under 11 U.S.C. § 544(b) and

S.D.C.L. § 54-8A-4(a)(2) because the transfer was made without adequate

consideration, i.e., was constructively fraudulent. All the defendants answered.11 The

parties have engaged in discovery, though whether it is complete is unknown.

Trustee Allred has moved for partial summary judgment (doc. 71), asking the

Court to grant judgment against Defendants Camille Nickeson and Farm Corporation,

11Trustee Allred withdrew his applications for default judgment after three

defendants filed late answers.

cancel or avoid Debtor's transfer of shares in Farm Corporation to Camille Nickeson,

and recover those shares for the estate. Defendants Camille Nickeson and Farm

Corporation responded to Trustee Allred's motion (doc. 95) and also filed their own

motion for partial summary judgment (doc. 87). After receipt of briefs and other

supporting documents, both motions were taken under advisement.

II.

Summary judgment is appropriate when "there is no genuine dispute as to any

material fact and the movant is entitled to judgment as a matter of law."

Fed.R.Bankr.P. 7056 and Fed.R.Civ.P. 56(a). An issue of material fact is genuine if

the evidence is such that a trier of fact could find for either party. Rademacher v. HBE

Corp., 645 F.3d 1005, 1010 (8th Cir. 2011). A genuine issue of fact is material if its

resolution affects the outcome of the case. Gazal v. Boehringer Ingelheim

Pharmaceuticals, Inc., 647 F.3d 833, 838 (8th Cir. 2011) (cite therein). In reviewing

a motion for summary judgment, the Court considers the pleadings, the discovery and

disclosure materials in the record, and any affidavits. Wood v. SatCom Marketing,

LLC, 705 F.3d 823, 828 (8th Cir. 2013). The Court's function is not to weigh the

evidence and determine the truth of the matter, but to determine whether there is a

genuine issue for trial. Tolan v. Cotton, ___ U.S. ___, 134 S.Ct. 1861, 1866 (2014).

The nonmovant receives the benefit of all reasonable inferences supported by the

evidence. B.M. ex rel. Miller v. South Callaway R-II School Dist., 732 F.3d 882, 886

(8th Cir. 2013).

The movant bears the burden of identifying those portions of the record that

demonstrate the absence of a genuine issue of material fact. Gibson v. American

Greetings Corp., 670 F.3d 844, 852-53 (8th Cir. 2012). If the movant meets its

burden, the nonmovant, to defeat the motion, must establish a genuine factual issue.

Residential Funding Co. v. Terrace Mortg. Co., 725 F.3d 910, 915 (8th Cir. 2013).

The nonmovant may not rest on mere allegations or pleading denials, Conseco Life Ins.

Co. v. Williams, 620 F.3d 902, 910 (8th Cir. 2010), or "merely point to unsupported

self-serving allegations." Anda v. Wickes Furniture Co., 517 F.3d 526, 531 (8th Cir.

2008) (quoted in Residential Funding, 725 F.3d at 915). Instead, the nonmovant, as

to those elements of a claim on which it bears the burden of proof, must substantiate

its allegations with admissible, probative evidence that would permit a finding in its

favor on more than speculation or conjecture. Celotex Corp. v. Catrett, 477 U.S. 317,

322-23 (1986) (quoted in Spaulding v. Conopco, Inc., 740 F.3d 1187, 1190-91 (8th

Cir. 2014)); F.D.I.C. v. Bell, 106 F.3d 258, 263 (8th Cir. 1997) (citing Kiemele v. Soo

Line R.R. Co., 93 F.3d 472, 474 (8th Cir. 1996), and JRT, Inc. v. TCBY Systems, Inc.,

52 F.3d 734, 737 (8th Cir. 1995)).

III.

The elements Trustee Allred must prove, by a preponderance of the evidence,

under count I to establish Camille Nickeson's obtaining a 97% equity interest in Farm

Corporation was actually fraudulent under 11 U.S.C. § 548(a)(1)(A) are: (1) Debtor

transferred an interest of his property; (2) within two years before Debtor's August

27, 2013 petition date; and (3) Debtor made the transfer with an actual intent to

hinder, delay, or defraud present or future creditors. Kaler v. McLaren (In re McLaren),

236 B.R. 882, 888-89 (Bankr. D.N.D. 1999).

Because fraud can rarely be established by direct evidence, fraudulent intent

may be inferred from the circumstances surrounding the transfer. Ahlgren v. Dailey

(In re Schnoor), 510 B.R. 868, 872 (Bankr. D. Minn. 2014) (citing Brown v. Third

National Bank (In re Sherman), 67 F.3d 1348, 1353 (8th Cir. 1995)). To determine

whether circumstantial evidence establishes a fraudulent intent, courts consider

whether any "badges of fraud" are present. Sherman, 67 F.3d at 1353; Allred v.

Parmley (In re Parmley), Bankr. No. 13-50109, Adv. No. 13-5005, 2013 WL

6577294, at *2-3 (Bankr. D.S.D. Dec. 16, 2013).

Once a trustee establishes a confluence of several badges of fraud, the

trustee is entitled to a presumption of fraudulent intent. See [Acequia,

Inc. v. Clinton (In re Acequia, Inc.), 34 F.3d 800, 806 (9th Cir. 1994)];

In re Bateman, 646 F.2d 1220, 1223 (8th Cir. 1981). In such cases,

"the burden shifts to the transferee to prove some 'legitimate

supervening purpose' for the transfers at issue." Acequia, 34 F.3d at

806.

Kelly v. Armstrong, 141 F.3d 799, 802 (8th Cir. 1998). The elements under count III,

wherein Trustee Allred relies on 11 U.S.C. § 544(b) and S.D.C.L. § 54-8A-4(a)(1), are

the same as in count I, except the reach-back period under state law is four years.

S.D.C.L. § 54-8A-9(a). State law recognizes similar badges of fraud. S.D.C.L. § 54-

8A-4(b); Nielsen v. Logs Unlimited, Inc., 839 N.W.2d 378, 381-82 (S.D. 2013).

The elements Trustee Allred must prove, by a preponderance of the evidence,

under count II to establish Camille Nickeson's obtaining a 97% equity interest in Farm

Corporation was constructively fraudulent under 11 U.S.C. § 548(a)(1)(B) are: (1) an

interest of Debtor in property; (2) was voluntarily or involuntarily transferred; (3) within

two years of August 27, 2013; (4) Debtor received less than reasonably equivalent

value; and (5) Debtor was insolvent at the time of the transfer or became insolvent as

a result thereof. Sullivan v. Welsh (In re Lumbar), 457 B.R. 748, 753 (B.A.P. 8th Cir.

2011). The elements Trustee Allred must prove under count IV, wherein he relies on

11 U.S.C. § 544(b) and S.D.C.L. § 54-8A-4(a)(2), are the same as in count II, except

the reach-back period under state law is four years. S.D.C.L. § 54-8A-9(b).

While Trustee Allred believes the present record entitles him to judgment as a

matter of law on the first four counts, Defendants Camille Nickeson and Farm

Corporation have challenged his ability to prevail on several of the required elements.

Their various legal and factual contentions are discussed below.

Sufficiency of the complaint. Defendants Camille Nickeson and Farm

Corporation contend Trustee Allred's claims in counts I through IV regarding fraud do

not pass muster under Fed.R.Civ.P. 9(b) because they were not pled with particularity.

Their argument is without merit.

Foremost, the rule does not apply to the allegations of constructive fraud

encompassed in counts II and IV. Larson Mfg. Co. of South Dakota, Inc. v.

Connecticut Greenstar, Inc., 929 F. Supp. 2d 924, 934-35 (D.S.D. 2013); In re

Petters Co., 495 B.R. 887, 916-17 (Bankr. D. Minn. 2013). Second, Trustee Allred's

allegations regarding actual fraud in counts I and III satisfy the who, what, where,

when, and how requirement of Rule 9(b): His allegations regarding Debtor's

transformation of Debtor's sole shareholder interest in Farm Corporation to a minority

shareholder interest, the insider status of stock recipient Camille Nickeson, the

problematic source of the funds Camille Nickeson transferred in exchange for the

stock, and Debtor's personal use of the funds received by Farm Corporation for the

stock all sufficiently evidence falsity in the transfers, especially in light of the nature

of the case and the relationship between the defendants. United States v. Planned

Parenthood of the Heartland, 765 F.3d 914, 917 (8th Cir. 2014) (cites therein); Larson

Mfg. Co., 929 F. Supp. 2d at 936-37; Petters Co., 495 B.R. at 895 and 917. In sum,

Trustee Allred's complaint presented no obstacles to these defendants' ability to

answer. Larson Mfg. Co., 929 F. Supp. 2d at 937.

Timeliness of counts I and II. Under § 548(a)(1)(A) or (B), reflected in Trustee

Allred's counts I and II, the subject transfer had to be made within two years before

Debtor's August 27, 2013 petition date. Defendants Camille Nickeson and Farm

Corporation argue the 60,000 shares were transferred to Camille Nickeson on

January 7, 2011, outside that two-year period.

The Court is satisfied the transfer of the 60,000 shares discussed in both

counts I and II fell within the required two-year reach-back period. On January 7,

2011, Farm Corporation's board authorized Farm Corporation to issue the 60,000

shares to Camille Nickeson when she paid the consideration for them. Farm

Corporation, however, did not acknowledge actual receipt of payment until

October 28, 2011, when it recorded the transfer in its books and issued Camille

Nickeson a stock certificate,12 thus completing the transfer.13 E.g., Golden v. Oahe

Enterprises, Inc., 240 N.W.2d 102, 108-09 (S.D. 1976) (as between corporation and

its shareholders, directors, and third parties in privity, once corporate stock is paid for

and the transfer is recognized in the corporate books, the shares are issued even if a

certificate has not been executed and delivered). The October 2011 completion date,

as reflected by Farm Corporation's records, is well within the two-year reach-back

period of § 548(a)(1).

Encumbrance of Debtor's shares. Citing S.D.C.L. § 54-8A-1(2)(i) and (12)

regarding the definition of an "asset " and a "transfer," Defendants Camille Nickeson

and Farm Corporation want counts III and IV dismissed because Debtor's security

agreement with Genex dated August 26, 2011 fully encumbered his shares in Farm

Corporation, thus precluding the 12,750 shares Debtor transferred to Camille Nickeson

from being an asset that may be the subject of a fraudulent–actual or

constructive–transfer. In response, Trustee Allred contends the security agreement

did not cover Debtor's Farm Corporation stock because it failed to identify the stock

as part of the collateral.

For two reasons, the Court will not dismiss counts III and IV, as requested by

Defendants in their motion for partial summary judgment. Foremost, Genex's security

12See supra note 8.

13Even by October 2011, it does not appear Camille Nickeson herself paid the

required compensation entitling her to shareholder status and a certificate, since she

passed along funds that in large part belonged to others.

agreement14 did not include Debtor's shares of Farm Corporation, which are a

"security," categorized as "investment property," S.D.C.L. §§ 57A-8-102(15), 57A-8-

103(a), and 57A-9-102(49), as part of its collateral.15 The security agreement did not

identify the stock by name, and Genex's reference to Debtor's "general intangibles,"

which specifically excludes "investment property" or "business assets," was

insufficient to identify the Farm Corporation stock as part of the collateral. S.D.C.L.

§ 57A-9-108(b). Debtor's confirmed chapter 11 plan and the incorporated stipulation

with Genex did not augment the security agreement because they did not actually

"create or provide" for the security interest; they only set forth what the parties would

do in the future. S.D.C.L. § 57A-9-102(a)(74). And the plan and stipulation also did

not identify specifically or by category Debtor's Farm Corporation stock as collateral

for Genex. Further, Genex's form UCC-1 financing statement did not create or provide

for the security interest and it was not signed by Debtor. Id.; Helms v. Certified

Packaging Corp., 551 F.3d 675, 680 (7th Cir. 2008) (security agreement creates the

14In a reply (doc. 107), Defendants Camille Nickeson and Farm Corporation

allude to a "pledge agreement" dated August 26, 2011 they want the Court to

consider in place of the security agreement referenced by both parties. They asked

for leave to file the pledge agreement as an attachment to an affidavit, but did not

explain why they had not, earlier in the proceeding, referenced this document and

included it in the record. With similar mystery, Defendants appended to their offered

copy of the security agreement (doc. 87-4) an extra page that said, "SCHEDULES AND

EXHIBITS TO THIS DOCUMENT ARE INTENTIONALLY OMITTED FOR PURPOSES OF THIS MOTION FOR

PARTIAL SUMMARY JUDGMENT[.]"

15An interest in a partnership or limited liability company is a "general

intangible," as long as it is not publicly traded or held in a securities account. S.D.C.L.

§§ 57A-8-103(c) and 57A-9-102(a)(42); see Davis v. Brown (In re Brown), 479 B.R.

112, 116-17 (Bankr. D. Kan. 2012).

security interest while the financing statement gives notice of that security interest);

In re Eyerman, 517 B.R. 800, 807 (Bankr. S.D. Ohio 2014) (standardized financing

statement, unsupported by other documentation, does not constitute a security

agreement); Eide v. Wollesen (In re Litwiller), 357 B.R. 523, 533 (Bankr. N.D. Iowa

2006) (form UCC-1 did not create a security interest). Consequently, the present

record does not demonstrate Genex ever had a security interest that attached to

Debtor's Farm Corporation shares, either before or after Farm Corporation created a

stock certificate for Debtor. See inter alia S.D.C.L. §§ 57A-8-106, 57A-9-106, and

57A-9-203(a) and (b).16

Second, even if Genex's security interest did attach to Debtor's Farm

Corporation shares, the present record does not demonstrate the shares were fully

encumbered. Nielsen v. Logs Unlimited, Inc., 839 N.W.2d 378, 384 (S.D. 2013).

Without knowing the amount of Genex's claim at the time of the subject transfer and

the value of all the collateral pledged–which seemingly included property belonging to

others, not just Debtor–the extent to which Genex was undersecured or oversecured

and the extent to which Debtor's Farm Corporation shares may have been encumbered

is unknown.

Transfer of Debtor's interest in property. An element common to all four counts

at issue is that the subject transfer must have been a transfer of an interest Debtor

held in property. Defendants Camille Nickeson and Farm Corporation dispute Trustee

16Because Genex is not a party herein, any final determination in this adversary

proceeding regarding whether Genex's security interest attached to Debtor's Farm

Corporation stock will be limited to this adversary proceeding.

Allred can meet that element as to the 60,000 shares Camille Nickeson acquired,

arguing the 60,000 increase in the available shares in Farm Corporation and their

issuance to Camille Nickeson did not constitute a transfer by Debtor, but was instead

a transfer by Farm Corporation. The Court concludes otherwise.

First, the definition of a transfer is broad, covering both direct and indirect

modes of parting with an asset or an interest in an asset. 11 U.S.C. § 101(54)(D);

S.D.C.L. § 54-8A-1(12); S. Rep. No. 95-989, at 27 (1978), reprinted in U.S.S.C.A.N.

1978, 5787, 5811 (quoted in Kaler v. Remily (In re Remily), 314 B.R. 790, 797

(Bankr. D.N.D. 2004)).

Second, Debtor was the sole director of Farm Corporation when he voted to

increase the available shares from 15,000 to 75,000 and, by this unilateral action, he

diluted his interest in Farm Corporation from 100% to 20%. Farm Corporation's

available capital or net worth, however, was not correspondingly increased by the

$133,000.00 Camille Nickeson gave Farm Corporation for her 60,000 shares.

Instead, Farm Corporation served only as a conduit for Debtor to transfer the

$133,000.00 to Genex. Moreover, as discussed above, Camille Nickeson actually

owned only a small percentage, if any, of the $133,000.00 she transferred to Farm

Corporation for the 60,000 shares. While the present record does not clarify why

Debtor mapped out this circuitous route to pay his debt to Genex, it is quite clear at

least one intended result was the transformation of his sole ownership of Farm

Corporation into a majority interest for his wife and a minority interest for himself.

Reilly v. Antonello, 852 N.W.2d 694 (Minn. App. 2014); see Nielsen v. Logs

Unlimited, Inc., 839 N.W.2d 378 (S.D. 2013).

That Debtor's machinations were reflected, by some measure, in Debtor's

confirmed chapter 11 plan and his stipulation with Genex17 does not alter the nature

of the transfer, especially where the terms of Debtor's stipulation with Genex were

never litigated during the confirmation process and where the record regarding the

actual transfer does not mirror the transfer proposed in the modified plan and

stipulation. In sum, to say the 60,000 increase in available shares was only a transfer

by Farm Corporation to Camille Nickeson would reward Debtor and Camille Nickeson

for their pervasive disregard for corporate formalities and fail to recognize the transfer

simply altered the record title of one of Debtor's principal assets: his stock in Farm

Corporation.

Debtor's insolvency. An element common to counts II and IV regarding

constructive fraud is whether Debtor was insolvent at the time of the two Farm

Corporation related transfers or became insolvent as a result of them. Defendants

Camille Nickeson and Farm Corporation argue Trustee Allred did not plead sufficient

facts establishing Debtor's insolvency or expected insolvency.

As discussed above, Trustee Allred's complaint regarding Debtor's insolvency

or expected insolvency after Debtor's transfer of his 12,750 shares was sufficient.

17The Court is being generous in saying Debtor's chapter 11 plan referenced this

transfer. Debtor's amended disclosure statement referenced "James Nickeson Farms"

and "Nickeson Farms." Debtor and Genex's stipulation, which was attached to both

the amended disclosure statement and Debtor's modified plan, referred to "Nickeson

Farms, Inc.," which may, at best, be considered Farm Corporation's predecessor. See

supra note 1. The status of Nickeson Farms, Inc. in early December 2010, when the

stipulation with Genex was executed, is unknown.

Moreover, the present record amply demonstrates Debtor's insolvency. He filed a

chapter 11 bankruptcy in late 2009. He did not get a plan confirmed until early 2011.

His chapter 11 case was dismissed on July 9, 2012, only seventeen months after

confirmation, on Debtor's own motion because his plan proved unsuccessful. Debtor's

assets were vastly outweighed by his liabilities, as set forth in his schedules for both

bankruptcy cases. Most important, there is nothing in the record that indicates his

personal balance sheet ever improved during his chapter 11 case or between his two

bankruptcy cases. Finally, one of Debtor's significant assets–whether its value is

measured in dollars or by its ability to generate income–was his solely held

corporation, Farm Corporation, in which he had placed substantial real and personal

property. His actions in giving his wife Camille Nickeson the majority ownership of

Farm Corporation while retaining only a fraction for himself for little or no

consideration–however the Farm Corporation stock may ultimately be valued–clearly

rendered Debtor insolvent, if he was not insolvent already.

Valuation of the shares in Farm Corporation. Defendants Camille Nickeson and

Farm Corporation argue the constructive fraud counts fail because Trustee Allred relied

on the stated par value of Debtor's Farm Corporation stock, declaring it "delivers an

absurd result," and because Trustee Allred failed to set forth undisputed facts

establishing the stock's "reasonably equivalent value." Defendants argue the stock's

value was, instead, whatever Farm Corporation's directors said it was, citing S.D.C.L.

§ 47-1A-621.

Though Trustee Allred referenced the stock's par value in his complaint, counts

II and IV remain actionable. As discussed above, his complaint adequately put

Defendants on notice of the transfers at issue and the attendant problems with the

consideration, or lack thereof, Camille Nickeson gave for the shares. Though the

stock's actual value may not be its stated par value, in South Dakota a stock's stated

par value still carries some measure of meaning, as evidenced by S.D. Const. art. XVII,

§ 8 and S.D.C.L. §§ 47-1A-202.1(2)(d) and 47-15-4(6), and Trustee Allred could use

that measure to initially assess the subject transfers, especially where Farm

Corporation was closely held and where Farm Corporation had contemporaneously

defined a par value for its stock. Moreover, in his complaint, Trustee Allred did not

solely rely on the par value in assessing whether Camille Nickeson gave reasonably

equivalent value for her shares. Instead, he noted the "unknown" value Debtor placed

on the stock in his schedules, the extensive assets Farm Corporation held, including

approximately 828 acres of real property, and Farm Corporation's February 12, 2013

balance sheet showing a net worth of just over $1.7 million. However, through their

motion for partial summary judgment, their response to Trustee Allred's motion, and

attendant affidavits and exhibits, Defendants Camille Nickeson and Farm Corporation

have established there is a material factual dispute regarding the stock's actual value

when the transfers were made, something Farm Corporation's 2013 balance sheet

may not fully reflect. Accordingly, summary judgment for Trustee Allred on counts

II and IV for constructive fraud will be denied.

IV.

The present record, while insufficient to grant summary judgment in Trustee

Allred's favor, greatly narrows the issues for trial.

For counts I and III regarding actual fraud, Trustee Allred has satisfied all the

elements with the present record. As discussed above, the record shows the two

transfers were of an interest Debtor held in property and both transfers were within

the applicable reach-back periods. As to Debtor's fraudulent intent, several badges

of fraud are readily apparent in the existing record, thus creating a rebuttable

presumption of fraud. Armstrong, 141 F.3d at 802; Parmley, 2013 WL 6577294, at

*2-3. The transfers of Debtor's shares in Farm Corporation were to an insider, Debtor

retained actual control of Farm Corporation, Debtor faced financial difficulties at the

time of the transfers, his interest in Farm Corporation constituted a major asset, and

Camille Nickeson used little, if any, personal funds to pay for the shares she received.

Accordingly, Defendants Camille Nickeson and Farm Corporation must go forward at

trial and establish some legitimate supervening purpose for the transfers. Armstrong,

141 F.3d at 802; Parmley, 2013 WL 6577294, at *2; see Stoebner v. Ritchie Capital

Management, L.L.C. (In re Polaroid Corp.), 472 B.R. 22, 34-36 (Bankr. D. Minn.

2012).18

As to counts II and IV regarding constructive fraud, the present record, as

discussed above, shows the two transfers were of an interest Debtor held in property

and both transfers were within the applicable reach-back periods. The present record,

also as discussed above, provides sufficient evidence Debtor was insolvent when the

18Under counts III and IV, which incorporate state law, the burden is not

recognized as shifting. See Prairie Lakes Health Care Sys. v. Wookey, 583 N.W.2d

405, 411-12 (S.D. 1998).

transfers were made, and Defendants Camille Nickeson and Farm Corporation have not

identified any admissible evidence that shows Debtor was solvent at the relevant

times.

The focus at trial as to Trustee Allred's constructive fraud counts will need to

be whether the consideration Camille Nickeson gave for her 72,750 shares was

"reasonably equivalent" to the shares' actual value at the time of the transfers.

Because Farm Corporation is closely held, a variety of factors may come into play

when valuing the stock. See Kaler v. Charles (In re Charles), Bankr. No. 10-31028,

Adv. No. 11-7008, 2012 WL 486524, at *9 (Bankr. D.N.D. Feb. 14, 2012).

Moreover, since some of the funds Camille Nickeson transferred were not actually

hers–her bank account served as a mere conduit for funds owned by others–what

consideration she personally gave for the shares may need to be clarified at trial.

Trustee Allred bears the burden of proof on the "less than reasonably equivalent value"

issue, though upon a prima facie showing, the burden of persuasion may shift to

Defendants to show otherwise. See, e.g., Polaroid Corp., 472 B.R. at 57 and 57 n.49

(discussing indirect benefit to debtor through third party); see also Prairie Lakes Health

Care Sys. v. Wookey, 583 N.W.2d 405, 414 n.7 (S.D. 1998).

An order will be entered denying both motions. A separate order will be entered

setting a final pre-trial conference, during which the Court will set a trial date on the

counts of Trustee Allred's complaint involving Defendants Camille Nickeson and Farm

Corporation.

Dated: November 25, 2014.