Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-04-02864/USCOURTS-ca8-04-02864-0/pdf.json

Parties Involved:
Joyce Bradley Babin
Not Party
Counseling Associates
Appellant
Harmon G. Ealy
Appellee
Robin Y. Ealy
Appellee

Document Text:

United States Court of Appeals

FOR THE EIGHTH CIRCUIT

___________

No. 04-2864

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In re: Harmon G. Ealy; Robin Y. Ealy, *

*

Debtors. *

-------------------------- *

*

Counseling Associates, Inc., *

*

Appellant, * Appeal from the United States

* District Court for the Eastern

v. * District of Arkansas.

*

Harmon G. Ealy; Robin Y. Ealy, * [UNPUBLISHED]

*

Appellees, *

*

Joyce Bradley Babin, *

*

Trustee. *

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Submitted: August 3, 2005

Filed: August 8, 2005

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Before MORRIS SHEPPARD ARNOLD, FAGG, and SMITH, Circuit Judges.

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Appellate Case: 04-2864 Page: 1 Date Filed: 08/08/2005 Entry ID: 1937305
1

The Honorable Susan Webber Wright, United States District Judge for the

Eastern District of Arkansas.

2

The Honorable Audrey R. Evans, Chief Judge, United States Bankruptcy

Court for the Eastern District of Arkansas.

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PER CURIAM.

Counseling Associates, Inc., appeals the district court’s1

 order affirming the

bankruptcy court’s2

 order granting an automatic stay in favor of debtors. We affirm.

Robin Ealy ran a daycare center called "Little Stars Child Care and Early

Education Learning Center" as a sole proprietorship since 1998. On April 23, 2003,

Ms. Ealy and her husband entered into a contract to buy real estate in Arkansas from

Counseling Associates. The Ealys agreed to make a down payment, and Counseling

Associates agreed to finance the remainder of the purchase price. The contract listed

the buyer as "Little Stars Child Care, LLC," although no such LLC then existed.

Ms. Ealy formed the LLC on May 1, 2003, and the real estate closing was held on

May 2. At closing, Counseling Associates conveyed the real estate to the LLC, and

received a promissory note and mortgage signed by the Ealys both individually and

as members of the LLC. No payment was made under the note or mortgage.

Counseling Associates filed suit seeking foreclosure of the mortgage and

obtained a default judgment. The Ealys filed for bankruptcy protection under

Chapter 13 shortly before Counseling Associates purchased the property at a public

sale. The Ealys obtained from the bankruptcy court a temporary restraining order to

prevent the property from being padlocked, and later a hearing was held on their

request for a preliminary injunction. Ms. Ealy testified the realtor told her that

Counseling Associates was requiring the Ealys to have an LLC before closing, and

that they could create an LLC through the state building in Little Rock; she believed

that she and her husband owned the property; and no one had ever asked her how she

Appellate Case: 04-2864 Page: 2 Date Filed: 08/08/2005 Entry ID: 1937305
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wanted the property titled. A Counseling Associates representative testified that

Counseling Associates did not require or prefer that an LLC purchase the property.

This court sits as a second court of review of the bankruptcy court, reviewing

its factual findings for clear error and its legal conclusions de novo. See In re Cedar

Shore Resort, Inc., 235 F.3d 375, 379 (8th Cir. 2000). An automatic stay protects

property of a bankruptcy estate from actions by creditors, including foreclosure and

repossession. See 11 U.S.C. § 362(a). Property of the estate is defined as "all legal

or equitable interests of the debtor in property as of the commencement of the case."

See 11 U.S.C. § 541(a)(1). Whether the Ealys have an equitable interest in the real

property is determined based on Arkansas state law. See Butner v. United States,

440 U.S. 48, 55 (1979); In re Broadview Lumber Co., 118 F.3d 1246, 1250 (8th Cir.

1997).

Under Arkansas law, a purchase-money resulting trust "arises where property

is purchased and the purchase price is paid by one person and at his/her direction the

vendor converts the property to another person." See Edwards v. Edwards,

843 S.W.2d 846, 848-49 (Ark. 1992). A resulting trust must be proved by clear and

convincing evidence. See id. at 849. We find the bankruptcy court did not clearly

err in determining that the Ealys did not intend the title to be held solely in the name

of the LLC, but that they intended to receive an interest in the property, and thus they

had an equitable interest in it. See Waller v. Waller, 693 S.W.2d 61, 63 (Ark. Ct.

App. 1985) (no clear error in finding that intention of parties was for resulting trust).

Accordingly, we affirm.

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Appellate Case: 04-2864 Page: 3 Date Filed: 08/08/2005 Entry ID: 1937305