ORDER
TERRY WOOTEN, District Judge
The Plaintiff has brought this pro se action against the Defendant under Title 42, United States Code, Section 1983. This matter is now before the undersigned for review of the Report and Recommendation ("the Report") filed by United States Magistrate Judge Shiva V. Hodges, to whom this case had previously been assigned pursuant to 28 U.S.C. § 636(b) and Local Rule 73.02(B)(2) (D.S.C.). In her Report, Magistrate Judge Hodges recommends that the Defendant's Motion for Summary Judgment be granted (Doc. # 29). (Doc. # 42). The Plaintiff has filed objections to the Report. (Doc. # 44).
In conducting this review, the Court applies the following standard:
The magistrate judge makes only a recommendation to the Court, to which any party may file written objections. . . . The Court is not bound by the recommendation of the magistrate judge but, instead, retains responsibility for the final determination. The Court is required to make a de novo determination of those portions of the report or specified findings or recommendation as to which an objection is made. However, the Court is not required to review, under a de novo or any other standard, the factual or legal conclusions of the magistrate judge as to those portions of the Report and Recommendation to which no objections are addressed. While the level of scrutiny entailed by the Court's review of the Report thus depends on whether or not
objections have been filed, in either case, the Court is free, after review, to accept, reject, or modify any of the magistrate judge's findings or recommendations.
Wallace v. Housing Auth. of the City of Columbia,
791 F.Supp. 137, 138 (D.S.C. 1992) (citations omitted).
In light of this standard, the Court has reviewed, de novo, the Report and the objections thereto. The Court accepts the Report.
THEREFORE, IT IS HEREBY ORDERED that the Magistrate Judge's Report is ACCEPTED (Doc. # 42); Plaintiff's objections are OVERRULED (Doc. # 44); and Defendant's Motion for Summary Judgment is GRANTED (Doc. # 29).
IT IS SO ORDERED.
September 16, 2010
Florence, South Carolina
ing-foundation#p18394 B.R. 180, 183 (Bankr. C.D. Cal. 1988).
In this case, the record shows that Suntrust received actual knowledge of the commencement of Debtors' case when it received notice of Debtors' § 341 meeting, which was sent to Suntrust by the Clerk shortly after the filing of Debtors' petition. Docket No. 2. However, Suntrust argues that its receipt of the § 341 meeting notice should not constitute "actual knowledge" of the bankruptcy case because, while it was delivered to Suntrust's offices in Maryland, the lender's local personnel involved in the approval and orchestration of the post-petition loan to Debtors, and the transfer of the mortgage, had no notice or actual knowledge of Debtors' bankruptcy case. See Suntrust's Brief at 6-7, Adv. Docket No. 15.
The Court respectfully disagrees with this argument. Whether an entity has "knowledge" of a bankruptcy case does not depend on the manner in which a company is organized, or the status and location of personnel receiving actual notice. See, e.g., Bucyrus Constr. Prod., Inc. v. McGregor (In re Ray Brooks Machinery Co., Inc.), 113 B.R. 56, 61 (Bankr. M.D. Ala. 1990) ("[Notice] should not depend on internal handling by employees and whether it reaches a certain desk in the company."); Worthing v. Connecticut Nat'l Bank (In re Worthing), 24 B.R. 774, 776 (Bankr. Conn. 1982) ("Although a creditor may choose to operate its business by dividing its activities into various departments, it may not use that method of operation as a shield against notice properly sent to the creditor in its name and at its place of business."). The official notice of the commencement of Debtors' bankruptcy case sent to Suntrust's Maryland offices, where it is undisputed it conducted business, was therefore sufficient to impart knowledge to Suntrust of the commencement of Debtors' bankruptcy case for the purposes of § 549.
Because it had actual, pre-lien-creation knowledge of the commencement of Debtors' bankruptcy case, Suntrust does not qualify as a good faith transferee under § 549(c). The only argument that Suntrust makes concerning its good faith is that notice of the case was sent to the non-local arm of the bank's operations. Suntrust has not shown an absence of facts justifying its failure to investigate whether the transfer would be avoidable. Because Suntrust has not carried the burden of showing that it lacked knowledge and acted in good faith, the transfer is not valid and is subject to avoidance under § 549(a).
2. Suntrust did not prove that present fair equivalent value was provided for the transfer.
Moreover, Suntrust also fails under the second prong of the § 549(c) analysis. Under that standard, a transferee must have paid present fair equivalent value for the transferred real property interest. § 549(c). The term "present fair equivalent value" has been defined as more exacting than "reasonably equivalent value," and requires that the value given be close to a property's fair market value. See Shaw v. County of San Bernardino (In re Shaw), 157 B.R. 151, 153-54 (9th Cir. BAP 1993).
Suntrust has not proved that the value it provided to Debtors was equivalent to the fair market value of the transferred property interest. While Suntrust charged Debtors for an appraisal, and asserts that it relied on the appraisal in determining the property's value, there is no indication of the transferred property interest's fair market value in the record besides an initial, unsupported claim by Debtors that the property was worth $198,000 at filing, and an indication by Suntrust that the county assessor values the property at $164,627. See Docket Nos. 1, 39; Adv. Docket Nos. 14-2, 15. Suntrust argues that "the stipulated facts do not demonstrate that the loan was not for present fair equivalent value." Suntrust's Brief at 8, Adv. Docket No. 15. But this statement turns the burden of proof on its head. It is Suntrust, not Trustee, that must prove that the loan was for present fair equivalent value. See Rule 6001. Suntrust has not done so.
3. Suntrust did not prove that notice of Debtors' bankruptcy was not filed with county.
Finally, there is no indication in the record whether a copy or notice of Debtors' petition was filed in the Bingham County, Idaho, clerk's office. If Trustee had recorded a notice of the petition prior to Suntrust's recording of its lien on January 15, 2009, the § 549(c) exception to § 549(a) would not apply. See § 549(c). While the Court suspects that such a recording did not occur, the evidentiary record is simply silent on this point. Again, silence is insufficient for Suntrust to satisfy its burden of proof under Rule 6001.
IV. Trustee may recover Debtors' unencumbered residence for the benefit of the estate.
Trustee may avoid Suntrust's post-petition lien for the benefit of the bankruptcy estate. See § 549(a); § 550(a). Section 550(a) is designed to place the bankruptcy estate in the financial condition that it would have been in had the avoided transfer not occurred. USAA Fed. Sav. Bank v. Thacker (In re Taylor), 599 F.3d 880, 890 (9th Cir. 2010). Avoidance of Suntrust's security interest in Debtors' property puts the estate in the financial condition that it would have been in had the transfer not occurred. Absent provision of the lien to Suntrust, and with the relinquishment of Suntrust's other liens on the property, Debtors' residence would have been available to the bankruptcy estate for liquidation and distribution to Debtors' creditors. See §§ 704(a)(1), 726.
Suntrust contends, however, that it would never have released its pre-petition secured interests if local personnel had known of the bankruptcy. Transcript of Oral Argument on Trustee's Complaint to Avoid Post-petition Transfer at 22:00 (Aug. 10, 2010). Per Suntrust's view, to restore Debtors' property to its pre-transfer condition requires that Suntrust's two pre-petition liens on the property be judicially reinstated. Suntrust's Supplemental Brief at 5, Adv. Docket No. 17.
The Code endows the Court with power to "issue any order, process, or judgment that is necessary or appropriate to carry out [Code] provisions." § 105(a). While § 105 vests certain equitable powers in the bankruptcy court, that power is not unrestrained. See Comm. of Creditors Holding Unsecured Claims v. Koch Oil Co. (In re Powerline Oil Co.), 59 F.3d 969, 973 (9th Cir. 1995). Instead, the § 105(a) power is limited in use to implementation of specific provisions of the Code. United Food and Commercial Workers Union, Local 770 v. Official Unsecured Creditors Comm. (In re Hoffman Bros. Packing Co., Inc.), 173 B.R. 177, 186 (9th Cir. BAP 1994).
Section 550 allows a trustee to recover transferred property for the benefit of the estate. § 550(a). Because § 550(a) is limited to the recovery of transferred property, use of the Court's equitable powers to reinstate Suntrust's mortgages in this context would not implement the provisions of § 550. On the other hand, some courts have used their discretion in crafting equitable remedies to put transferees in the position that they would have been in had the avoided transfer not occurred. See In re Straightline Investments, Inc., 525 F.3d at 883-84 (discussing Bakst v. Sawran (In re Sawran), 359 B.R. 348 (Bankr. S.D. Fla. 2007); Dobin v. Presidential Fin. Corp. of Del. Valley (In re Cybridge Corp.), 312 B.R. 262, 268-72 (D. N.J. 2004)). Those courts, however, often considered situations where the transferee was unaware of the bankruptcy case before accepting the transfer. See id. Where transferees have pre-transfer knowledge of the bankruptcy case,
such as here, the Court declines to exercise its discretion to favor the interests of a wrong-doing transferee over those of the other creditors of the bankruptcy estate. See also id. at 884 (reviewing Acequia, Inc. v. Clinton (In re Acequia, Inc.), 34 F.3d 800, 812 (9th Cir. 1994), and finding that requiring wrongfully-transferred property to be returned to the estate, rather than the transferee, is proper where a debtor's equitable claim to the transferred property is greater than the transferee's claim).
Adopting Suntrust's position would, in essence, condone the conduct of a creditor that, without taking any steps to avoid this predicament, knowingly accepted an unauthorized transfer of property of a bankruptcy estate. This the Court refuses to do. Suntrust had actual knowledge of Debtors' bankruptcy at the time that it chose to engage in this unauthorized transaction and release its pre-petition first and second mortgages on the property. The deeds of reconveyance on those mortgages were executed a mere sixty-eight days after Debtors filed their bankruptcy petition, and just a month after the § 341 creditors' meeting. Even accepting Suntrust's position that its local personnel acted without knowledge of the pendency of Debtors' bankruptcy case, Suntrust has little to be proud of in its approach to this transaction. The records of this Court, like those of all bankruptcy courts, are freely available to the public (and Suntrust) via the Internet. A quick and simple PACER search would have immediately yielded the information Suntrust needed to protect itself against entry into an unauthorized transaction in bankruptcy estate property. Section 550 is more protective of the estate than of transferees, and the Court is not inclined to allow Suntrust to benefit from an unauthorized post-petition transfer when it could have so easily protected its interests. See id. at 884-85 ("Section 550 is . . . substantially less protective of transferees than it is of the estate.").
Conclusion
Under § 101(54), Debtors' post-petition grant of a mortgage to Suntrust is a transfer for the purposes of § 549. The Debtors' creation of that lien was an unauthorized transfer, and Suntrust failed to prove that it was a good faith transferee under § 549(c). The post-petition transfer may, therefore, be avoided by Trustee under §§ 549(a) and 550(a).
Counsel for Trustee shall submit an appropriate form of judgment for entry by the Court; counsel for Suntrust shall approve the form of that judgment.
The Court expresses no opinion, in light of this decision, concerning Suntrust's status as a creditor in this bankruptcy case, whether the post-petition loan by Suntrust to Debtors is discharged, nor whether Debtors may assert a homestead exemption in the house, or the relative priority of that exemption, vis a-vis Trustee.
Dated: September 16, 2010