PATRICIA WILLIAMS, Chief Judge
Bruce R. Boyden (hereinafter "Boyden"), Chapter 7 Trustee of the Estate of Metropolitan Investment Securities, Inc., (hereinafter "MIS"), through his undersigned attorney, Mary Ellen Gaffney-Brown of Lineberger Gaffney-Brown, PLLC, hereby submits the following Memorandum in Support of Trustee's Motion for Summary Judgment.
I. INTRODUCTION
This action arises out of MIS' former employees' erroneous payment of restitution funds to Defendant, Dorothy M. Simpson, (hereinafter "Mrs. Simpson") in the amount of Eighty Thousand Dollars ($80,000.00) by check negotiated January 6, 2004. By this Motion, Trustee seeks to have judgment entered against Mrs. Simpson, in the amount of Eighty Thousand Dollars ($80,000.00) on the basis that the payment was made in error, at a time MIS was insolvent, within ninety (90) days before the February 4, 2004, petition date, which resulted in Mrs. Simpson receiving more than the other 7,600 + similarly situated MIS claimants. The lack of meritorious defenses, entitles Trustee to recover the payment and to make those funds available for distribution to all creditors.
II. STATEMENT OF FACTS
Concurrent with this Memorandum, Trustee has filed an LR 7056-1 Statement of Material Facts which set out in serial fashion the specific facts relied upon for this Motion and will provide only a summary of those facts here. Debtor, MIS, a failed broker dealer licensed by the National Association of Security Dealers (hereinafter "NASD") ceased operations and customer transactions on December 15, 2003. MIS executed a Letter of Acceptance, Waiver and Consent (hereinafter "AWC") on October 16, 2003, which was accepted by NASD by letter dated October 23, 2003. The AWC established two (2) funds, one of which was the Restitution Account to compensate certain investors specified by NASD in an amount specified by NASD listed on Schedule A of the AWC. MIS filed a Voluntary Petition for Protection under Chapter 7 of the US Bankruptcy Code on February 4, 2004. Pre-petition, MIS had commenced distribution under AWC Schedule A, to the specific customers payable from the Restitution Account. Mrs. Simpson was not listed on Schedule A. MIS's former employees erroneously included Mrs. Simpson for a restitution payment which Mrs. Simpson received via check dated December 31, 2003, in the amount of Eighty Thousand Dollars ($80,000.00); the check was negotiated on January 6, 2004. The erroneous payment was discovered by MIS sometime in the middle of January, 2004.
Trustee made written demand on Mrs. Simpson for return of the funds, whose reply through Attorney Raymond B. Landry, stated that Mrs. Simpson would respond in due course through his offices. This action was filed November 24, 2004, and an Answer to Complaint was filed January 10, 2005, by local counsel John W. Campbell. After participating in a Scheduling Conference and exchange of discovery, Mr. Campbell withdrew on April 18, 2005, listing Mrs. Simpson's address c/o Attorney Mr. Rathburn. When served with discovery, in the form of Interrogatories and Request for Production of Documents and Request for Admissions, Mr. Rathburn advised Trustee's counsel that he did not represent Mrs. Simpson in this matter. Mrs. Simpson was served with the same discovery, including Request for Admissions on July 29, 2005; to date Mrs. Simpson has not responded. Concurrent with this Motion, Trustee has filed a Motion for Order That Matters in Request for Admissions Be Deemed Admitted. Mrs. Simpson is pro se in the matter.
This is a case of the failed broker/dealer's employees using an erroneous AWC, Schedule A and wrongfully forwarding Eighty Thousand Dollars ($80,000.00) to an individual not ordered by the NASD to receive funds from the account. Under 11 USC § 547(b), the payment was preferential as it was made to Mrs. Simpson, a creditor of MIS, within thirty-five (35) days before the petition date, at a time MIS was insolvent. The payment enabled Mrs. Simpson to recover more than she would have received as a creditor if the transfer had not have been made and, therefore, under 11 USC § 550(a), Trustee is entitled to recover from Mrs. Simpson the sum of the preferential payment.
III. LEGAL ARGUMENT
A. Mrs. Simpson Received a Preferential Transfer.
The Bankruptcy Code at 11 USC § 547(b) provides, in pertinent part, as follows:
. . . the trustee may avoid any transfer of an interest of the debtor in property —
(1) to or for the benefit of a creditor;
(2) for or on account of an antecedent debt owed by the debtor before such transfer was made;
(3) made while the debtor was insolvent;
(4) made —
(A) on or within 90 days before the date of the filing of the petition; . . .
(5) that enables such creditor to receive more than such creditor would receive if —
(A) the case were a case under chapter 7 of this title;
(B) the transfer had not been made; and
(C) such creditor received payment of such debt to the extent provided by the provisions of this title.
In re Food Catering Housing Inc., 971 F.2d 396 (9th Cir. 1992). The Trustee bears the burden of proving all of the elements of a preference under § 547(b).
In re Bullion Reserve of North America, 836 F.2d 1214, 1217 (9th Cir. 1988),
cert. denied 486 U.S. 1056, 108 S.Ct. 2824, 100 L.Ed.2d 925 (1988); 4
Collier on Bankruptcy § 547.21[5](15th ed. 1992).
The Trustee here satisfies each of the elements of preferential transfer as follows:
[1](a) TRANSFER. The check from the debtor to MIS was a "transfer" as defined in Section 101(54) of the Bankruptcy Code. 11 USC § 547(b). [1](b) TO OR FOR THE BENEFIT OF A CREDITOR. The check was paid to Mrs. Simpson, a creditor as defined in Bankruptcy Code Section 101(10). [1]c. FOR OR ON ACCOUNT OF AN ANTECEDENT DEBT. The transfer was made for or on account of an antecedent debt owed by Debtor before such transfer was made. The antecedent debt was the amount of debenture investments Mrs. Simpson purchased through MIS, evidenced in her signed letter of acceptance of payment offer.
Section 101(54) defines "transfer" as follows: (54) "transfer" means every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with property or with an interest in property, including retention of title as a security interest and foreclosure of the debtor's equity of redemption. 11 USC § 101(54) (1993).
Section 101(10) defines "creditor" as follows:
(10) "creditor" means —
(A) entity that has a claim against the debtor that arose at the time of or before the order for relief concerning the debtor;
(B) entity that has a claim against the estate of a kind specified in section 348(d), 502(f), 502(g), 502(h) or 502(i) of this title; or
(c) entity that has a community claim.
11 USC § 101(10) (1993)
Section 101(12) defines "debt" as "liability on a claim." 11 USC § 101(12). "Claim" is defined in Section 101(5) as follows:
(A) right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured; or
(B) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disrupted, undisputed, secured or unsecured.
11 USC § 101(5) (1993).
[1]d. MADE WHEN THE DEBTOR WAS INSOLVENT. Trustee, Mr. Boyden is entitled to a presumption that Debtor was insolvent during the ninety (90) days immediately preceding the date of the filing of the bankruptcy petition. 11 USC § 547(f). MIS's Schedule B executed on February 4, 2004, were investigated by the Trustee on February 6, 2004, which indicated the existence of debts aggregating $1,300,142.46, as opposed to the actual total asset value, $472,859.83. The bankruptcy petition filed February 4, 2004, and the Trustee's investigation, confirms MIS's insolvency on the date of the transfer, January 6, 2004, (the date the check dated December 31, 2003 was honored).
Section 101(32) defines "insolvent" as follows:
(32) "insolvent" means —
(A) with reference to an entity other than a partnership or municipality, financial condition such that the sum of such entity's debts is greater than all of such entity's property, at a fair valuation, exclusive of —
(i) property transferred, concealed, or removed with intent to hinder, delay, or defraud such entity's creditors; and
(ii) property that may be exempted from property of the estate under section 522 of this title.
11 USC § 101(32)(A) (1993).
[1]e. MADE WITHIN 90 DAYS BEFORE THE DATE OF THE FILING. The date of the transfer from MIS to Mrs. Simpson was January 6, 2004, the day the check was honored, Barnhill v. Johnson, 503 U.S. 393, 112 S.Ct. 1386, 118 L.Ed.2d 39 (1992), which was within ninety (90) days before the filing of Debtor's bankruptcy petition on February 4, 2004. 11 USC § 547(b)(4)(A).
[1]f. THE TRANSFER ENABLED Mrs. SIMPSON TO RECEIVE A GREATER SHARE THAN SHE WOULD HAVE RECEIVED IN A CHAPTER 7 LIQUIDATION. Absent the erroneous payment of Eighty Thousand Dollars ($80,000.00), Mrs. Simpson would receive significantly more than the Seven Thousand Six Hundred plus ($7,600.00+) investors who have filed Proofs of Claim in the MIS bankruptcy and as general unsecured creditors can expect to receive less than ten percent (10%) of their claims. Cf. In re Virginia-Carolina Financial Corp., 954 F.2d 193, 199 (4th Cir. 1992). ("The evidence introduced at trial indicates that general unsecured creditors would "optimistically" receive five to ten percent of the money that the Debtors owed, and we fail to see how Creative can claim to take from the estate any more than this share.") Mrs. Simpson does not claim she was a secured creditor. Therefore, the Court should conclude that the transfer to Mrs. Simpson enabled her to receive more than her share under a Chapter 7 distribution. 11 USC § 547(b)(5).
[1]g. THE TRANSFER INVOLVED AN INTEREST OF THE DEBTOR IN PROPERTY. The concept of "property of the estate" under Bankruptcy Code Section 541(a) which is applicable to the instant complaint for recovery of a preference, is all-inclusive and has been given an expansive interpretation by the courts. In re Bullion Reserve of North America, 836 F.2d at 1217, 971 F.2d 396 (9th Cir. 1992).
Section 541(a) provides:
§ 541. Property of the estate.
(a) The commencement of a case under section 301, 302, or 303 of this title creates an estate. Such estate is comprised of all the following property, wherever located and by whomever held:
(1) Except as provided in subsection (b) and (c)(2) of this section, all legal or equitable interests of the debtor in property as of the commencement of the case.
(2) All interests of the debtor and the debtor's spouse in community property as of the commencement of the case that is —
(A) under the sole, equal, or joint management and control of the debtor; or
(B) liable for an allowable claim against the debtor, or for both an allowable claim against the debtor's spouse, to the extent that such interest is so liable.
(3) Any interest in property that the trustee recovers under section 329(b), 363(n), 543, 550, 553 or 723 of this title.
(4) Any interest in property preserved for the benefit of or ordered transferred to the estate under Section 510(c) or 551 of this title.
(5) Any interest in property that would have been property of the estate if such interest had been an interest of the debtor on the date of the filing of the petition, and that the debtor acquires or becomes entitled to acquire within 180 days after such date —
(A) by bequest, device, or inheritance;
(B) as a result of a property settlement agreement with debtor's spouse, or of an interlocutory or final divorce decree; or
(C) as beneficiary of a life insurance policy or a death benefit plan.
(6) Proceeds, product, offspring, rents, or profits of or from property of the estate, except such as are earnings from services performed by an individual debtor after the commencement of the case.
(7) Any interest in property that the estate acquires after the commencement of the case.
11 USC § 541(a) (1993).
Here, Mrs. Simpson received an Eighty Thousand Dollar ($80,000.00) payment thirty-five (35) days prior to the MIS Voluntary Petition. The erroneous payment by MIS's former employees enabled Mrs. Simpson to receive more than the other similarly situated investors who now make up the thousands of claimants in the MIS Chapter 7 distribution. The Trustee has met his burden of proof that all of the elements of a preferential action under § 547(b) apply in this matter and recovery of the sum is appropriate.
B. No Evidence Supports Mrs. Simpson's Alleged Exceptions To Preference.
As the party asserting exceptions to preference under § 547(c), Mrs. Simpson bears the burden of establishing elements of the defense. In re Marino, 193 BR 907, 913 (9th Cir. 1996). Here, Mrs. Simpson has raised eight (8) different affirmative defenses, none of which are established by the record before the Court.
As part of the preliminary disclosures in this matter, Mrs. Simpson agreed to provide evidence of her actual damages. No such evidence was received. The only items provided were the contents of the document provided to Mrs. Simpson in the Trustee's Rule 7026 Initial Disclosures. Contemporaneous with this Motion, Trustee has filed Trustee's Motion for Order That Matters In Request for Admissions Be Deemed Admitted, (Dkt. No. 635). By that Motion, Trustee seeks to establish the authenticity of the negotiation of the check received by Mrs. Simpson, the timing of the payment, and the debt owed to Mrs. Simpson by MIS. Mrs. Mrs. Simpson cannot now claim that the funds were not received or that the document submitted by Trustee in support of this Motion on the basis of her complete failure to respond to discovery served July 29, 2005. Mrs. Simpson has failed to present any evidence before this court that the payment meets the requirement of 11 U.S.C. § 547(c) defenses. There are no defenses in this case and Trustee is entitled to avoidance of the transfer and judgment on the sum sought.
IV. CONCLUSION
At the time this Adversary Complaint was filed, Mrs. Simpson was represented by not one but two counsel. The Trustee has proven all statutory elements of avoidable preferential transfer. The Trustee has demonstrated there is no evidence that the payment meets the requirements of exceptions to preference. The Trustee is entitled to an Order Granting Summary Judgement of Preference Payment and Judgment in the amount of the preference payment allowing Trustee to recover from Mrs. Simpson the sum of Eighty Thousand Dollars ($80,000.00), together with interest at the statutory rate from the date of entry of judgment until paid.