Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-04-06052/USCOURTS-ca8-04-06052-0/pdf.json

Parties Involved:
Richard L. Cox
Appellee
Barbara Griffin
Appellant
Stephen A. Griffin
Not Party

Document Text:

1

The Honorable James G. Mixon, United States Bankruptcy Court for Western

Arkansas. 

United States Bankruptcy Appellate Panel

FOR THE EIGHTH CIRCUIT

_____________

No. 04-6052WA

_____________

In re: Stephen A. Griffin *

*

Debtor. *

 * 

Richard L. Cox * Appeal from the United States

 * Bankruptcy Court for Western *

Plaintiff-Appellee, * Arkansas 

*

v. *

*

Barbara Griffin, *

*

Defendant-Appellant. *

_____________

Submitted: January 21, 2005

Filed: January 27, 2005

_____________

Before, SCHERMER, FEDERMAN, and VENTERS, Bankruptcy Judges.

_____________

FEDERMAN, Bankruptcy Judge.

Barbara Griffin appeals from an order of the bankruptcy court1

 avoiding post

petition payments made to her by her husband, debtor Stephen A. Griffin. The

bankruptcy court also held that a prenuptial agreement executed by Stephen and

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Barbara did not result in a present transfer of certain real estate to Barbara. As a

result, such real estate is an asset of Stephen’s bankruptcy estate. We affirm.

FACTUAL BACKGROUND

On April 26, 2000, Barbara and Stephen executed a prenuptial agreement that

provided in part:

Further, it is the intent of Stephen Griffin to give, devise, and bequeath

to Barbara Freeman, the One acre of Land and Improvements located at

9105, 9107, and 9109 Highway 71 South, Fort Smith, Arkansas. Upon

the death of Stephen Griffin, Barbara Freeman is also entitled to receive

any rent income from this property.

At the same time, Stephen apparently executed and delivered to Barbara a Quitclaim

Deed to the real estate. Barbara did not, however, record the deed at that time. On

April 28, 2000, Barbara and Stephen were married. 

On December 1, 2000, Stephen purchased the liquor store business, including

all of its assets, that was located on the real estate at issue in the prenuptial agreement.

The purchaser under the agreement was Stephen A. Griffin d/b/a G&K Oil. The

bookkeeper for the liquor store disbursed to Stephen rental payments in the amount

of $8,000.00 per month. Stephen testified that he formed a limited liability company

(LLC) to hold the assets of the liquor store, but he never transferred any assets into

the LLC and the LLC never operated the store. On August 28, 2001, Stephen filed

Articles of Incorporation for an entity denominated as Highway 71 Liquor, Inc. He

issued 50 shares in that corporation to himself and 50 shares to Barbara. Stephen

never executed any documents transferring the assets of the liquor store to the

corporation. Barbara paid no consideration for her stock. In December of 2001

Stephen did, however, instruct the bookkeeper to issue five checks to Barbara in the

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amount of $2,500.00 each and to backdate the books and records to show that she had

been receiving regular disbursements since the incorporation.

On January 14, 2002, Stephen filed a Chapter 11 bankruptcy petition. On

February 5, 2003, the court converted the case to Chapter 7. On February 20, 2003,

Barbara recorded the Quitclaim Deed. 

On April 11, 2003, the bankruptcy court entered an order holding that the

liquor store business was Stephen’s sole property at the time of the Chapter 11 filing.

No one appealed that order. 

After conversion to Chapter 7, the trustee learned that in December of 2001

Stephen had instructed the bookkeeper to begin paying Barbara and himself each

$5,000.00 per month. The first disbursements were made on December 24, 2001, and

were made each month thereafter until the case was converted to Chapter 7 on

February 5, 2003.

The Chapter 7 trustee filed an adversary proceeding seeking to avoid the postpetition transfer of funds to Barbara, and to avoid the filing of the Quitclaim Deed.

On September 8, 2004, the court entered judgment in favor of the trustee. The court

found as follows: (1) the post-petition payments to Barbara, totaling $65,000.00, are

avoidable; (2) the Quitclaim Deed was recorded post petition and, thus, was void as

to the trustee; and (3) the prenuptial agreement did not transfer a present interest in

real estate. On appeal, Barbara contends that she owns the real estate and was,

therefore, entitled to rent payments in the amount of $5,000.00 per month.

Alternatively, she argues that she owns 50 percent of the operating entity known as

Highway 71 Liquor, Inc., and her ownership interest entitles her to the disbursements

she received.

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Gourley v. Usery (In re Usery), 123 F.3d 1089, 1093 (8th Cir. 1997); O'Neal v.

Southwest Mo. Bank (In re Broadview Lumber Co., Inc.), 118 F.3d 1246, 1250 (8th

Cir. 1997) (citing First Nat'l Bank of Olathe, Kansas v. Pontow, 111 F.3d 604, 609

(8th Cir.1997)). Fed. R. Bankr. P. 8013.

3

First Nat’l Bank of Olathe, Kansas v. Pontow (In re Pontow), 111 F.3d 604, 609 (8th

Cir. 1997); Sholdan v. Dietz (In re Sholdan), 108 F.3d 886, 888 (8th Cir. 1997).

4

Wesley v. Estate of Bosley, 105 S.W.3d 389, 393 (Ark. Ct. App. 2003).

4

STANDARD OF REVIEW

A bankruptcy appellate panel shall not set aside findings of fact unless clearly

erroneous, giving due regard to the opportunity of the bankruptcy court to judge the

credibility of the witnesses.2

 We review the legal conclusions of the bankruptcy court

de novo.3

DISCUSSION

Barbara’s arguments on appeal are based on her contention that she is the

owner of the real estate, and is also the owner of one-half of the business from which

the challenged payments were made. We begin with the real estate. Barbara contends

that the language in the prenuptial agreement is evidence of Stephen’s intent to give

her the real estate upon which the liquor store is located. The bankruptcy court found

that the language “to give, devise, and bequeath” is a term of art used to grant a future

interest. We agree. Moreover, in Arkansas, an inter vivos gift conveys a present

ownership interest only if the donor is of sound mind, delivers the gift, and releases

all future dominion and control over the property.4

 The bankruptcy court found that

Stephen continued to collect the rent from the real estate until shortly before he filed

for bankruptcy relief, thus he did not relinquish dominion and control over the

property. The court, therefore, correctly found, especially in light of the fact that the

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11 U.S.C. § 544(a)(3). See also, Mixon v. Anderson (In re Ozark Restaurant

Equipment Co.), 816 F.2d 1222, 1229 (8th Cir. 1987) (stating that, with respect to real

estate, section 544 confers upon the trustee the rights of a bona fide purchaser).

6

11 U.S.C. § 1107(c).

5

Quitclaim Deed was never recorded, that a prenuptial agreement cannot act as a

conveyance of property in and of itself.

Even if the prenuptial agreement did convey Stephen’s interest in the real

estate, Barbara would not prevail. While the Quitclaim Deed was apparently executed

on April 26, 2001, it is undisputed that it was recorded on February 20, 2003–13

months after Stephen filed this bankruptcy case. The bankruptcy trustee has, as of the

commencement of the case, the rights and powers of a bona fide purchaser:

(A) The trustee shall have, as of the commencement of the case, and

without regard to any knowledge of the trustee or of any creditor, the

rights and powers of, or may avoid any transfer of property of the debtor

or any obligation incurred by the debtor that is voidable by–

. . .

(3) a bona fide purchaser of real property, other than

fixtures, from the debtor, against whom applicable law

permits such transfer to be perfected, that obtains the status

of a bona fide purchaser at the time of the commencement

of the case, whether or not such a purchaser exists [and has

perfected such purchase].5

In a Chapter 11 case, which this one started out as, a debtor in possession has all

applicable rights to which a bankruptcy trustee would be entitled.6

 Thus, any

unrecorded interest as of the date of the Chapter 11 filing is junior to the bona fide

purchaser status of the debtor in possession (or the trustee). Since Barbara had not

recorded the deed as of the commencement of the case, the debtor in possession (and

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Mixon v. Anderson (In re Ozark Restaurant Equipment Co.), 816 F.2d 1222, 1229

(8th Cir. 1987) (holding that the rights afforded the trustee by section 544 exist

without regard to any knowledge of the trustee); In re Sandy Ridge Oil Co., 807 F.2d

1332, 1335 (7th Cir. 1986).

8

807 F.2d 1332.

9

Id. at 1335 (citing 11 U.S.C. § 544(a).

6

later the trustee) succeeded to Stephen’s ownership interest. Barbara argues that the

Chapter 7 trustee had notice of her Quitclaim Deed and should, therefore, be denied

the status of a bona fide purchaser. The bankruptcy court, however, correctly found

that the trustee’s personal notice is not relevant.7

 As the court explained in In re

Sandy Ridge Oil Company,

8

 bankruptcy courts look to state law to determine the

rights of the parties unless Congress specifically requires courts to do otherwise.

Section 544 specifically provides that the trustee shall avoid an interest avoidable by

a bona fide purchaser, “without regard to any knowledge of the trustee.”9

 Moreover,

the trustee had no knowledge, constructive or actual, of an unrecorded Quitclaim

Deed on January 14, 2002, when Stephen filed this case. Barbara’s interest in the real

estate is, therefore, inferior to that of the trustee.

We turn next to the post-petition payments of $5,000.00 per month. Barbara

first contends that she was entitled to such payments as rent for the liquor store

premises. Since we have concluded that she did not own the real estate, she is not

entitled to collect rent therefrom. Next, she contends that the payments were made

from the liquor store, and that she owns 50 percent of the stock in the company that

owns the liquor store. The bankruptcy court had found, however, in an order entered

on April 11, 2003, that the assets of the liquor store were the sole property of

Stephen. Barbara did not appeal that order. The bankruptcy court found that, while

she may own 50 percent of the stock of Highway 71 Liquor, Inc., that corporation

owned no assets. The operating entity at the time of the bankruptcy filing was

Highway 71 South Liquor, a sole proprietorship owned by Stephen Griffin. That

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10Arizona v. California, 460 U.S. 605, 618, 103 S. Ct. 1382, 1391, 75 L. Ed. 2d 318

(1983) (law of case doctrine posits "when a court decides upon a rule of law, that

decision should continue to govern the same issues in subsequent stages in the same

case").

1111 U.S.C. § 549(a).

7

finding is now final, and is the law of this case.10 Therefore, the disbursements at

issue were made not by the corporation, but by Stephen in his status as debtor in

possession. 

The disbursements at issue in this appeal were all made post petition. Section

549 of the Code authorizes the trustee to avoid any post-petition transfer of property

of the estate that is not authorized by the Court:

(a) Except as provided in subsection (b) or (c) of this section, the trustee

may avoid a transfer of property of the estate–

(1) that occurs after the commencement of the case; and

(2)(A) that is authorized only under section 303(f) or

542(c) of this title; or

(B) that is not authorized under this title or by the court.11

The bankruptcy court never authorized post-petition disbursements to Barbara from

the liquor store. The court, therefore, did not err when it found the disbursements

avoidable. 

The bankruptcy court correctly found that Barbara does not hold an interest in

real estate superior to that of the trustee. And, the bankruptcy court correctly found

that post-petition disbursements to her in the amount of $65,000.00 were recoverable

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under section 549 of the Code. We, therefore, affirm the judgment of the bankruptcy

court.

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