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In re Moorhouse

United States District Court, Second Circuit

December 20, 2013

In Re: ANNETTE J. MOORHOUSE and DAVID A. MOORHOUSE MORRIS L. HOROWITZ, as Chapter 7 Trustee of the Bankruptcy Estate of Annette J. Moorhouse and David A. Moorhouse, Plaintiff-Appellee,
v.
GERALD ROTE, and ANNALISA ROTE, Defendants-Appellants.

DECISION AND ORDER

RICHARD J. ARCARA, District Judge.

This bankruptcy appeal is of a grant of summary judgment in an adversary proceeding brought by a Chapter 7 trustee pursuant to 11 U.S.C. § 547 to avoid a preferential transfer of property. An Opinion, Decision and Order of the Bankruptcy Court for the Western District of New York, Michael J. Kaplan, Bankruptcy Judge, held that perfection of a mortgage lien on the home of debtors Annette J. Moorhouse and David A. Moorhouse was an avoidable preferential transfer under § 547(b) of the Bankruptcy Code.

The preference action was based upon the following undisputed facts: On May, 12, 2009, the defendant-appellants, Gerald Rote and Annalisa Rote, loaned $38, 000 to their daughter and son-in-law, debtors Annette and David Moorhouse, to buy a home. The Rotes took a mortgage on the Moorhouses' new home to secure repayment of the loan. The Rotes did not publically record the mortgage until May 4, 2011, seven months before the Moorhouses filed a bankruptcy petition on December 19, 2011.

The Court has considered the submissions of the Rotes and the Chapter 7 Trustee and finds oral argument is unnecessary. See Fed.R.Bankr.P. 8012. The Bankruptcy Court's grant of summary judgment in favor of the Chapter 7 trustee and against the Rotes correctly rejected the Rotes' claim to an enforceable equitable lien on the Moorhouses' home, but it lacked specific findings on the insolvency and improvement-of-position elements of a preferential transfer under § 547(b). The record on appeal does not show whether the Bankruptcy Court's lack of necessary findings was harmless error. Accordingly, the Opinion, Decision and Order of the Bankruptcy Court is affirmed in part, vacated in part, and remanded for further proceedings.

STANDARDS OF REVIEW

The Court has jurisdiction to hear appeals of final orders of the Bankruptcy Court under 28 U.S.C. § 158(a). It functions as an appellate court when doing so. In re Sanshoe Worldwide Corp., 993 F.2d 300, 305 (2d Cir. 1993). The Court does not have jurisdiction to find facts on appeal; it can only review the factual findings of the bankruptcy court for clear error. Fed.R.Bankr.P. 8013; Morgan v. Gordon, 450 B.R. 402, 405 (W.D.N.Y. 2011) ( quoting Bagel Bros. Maple, Inc. v. Ohio Farmers, Inc., 279 B.R. 55, 61 (W.D.N.Y. 2002)). The Court reviews the legal conclusions of the Bankruptcy Court de novo. See In re Weber, 719 F.3d 72, 75 (2d Cir. -); see e.g., In re Bayshore Wire Prods. Corp., 209 F.3d 100, 103 (2d Cir. 2000).

The Bankruptcy Court's grant of summary judgment pursuant to Bankruptcy Rule 7056 - a determination that no genuine issues of material fact preclude entry of judgment - is a legal conclusion reviewed de novo. See Shackner v. Breslin Realty Development Corp., No. 11-CV-2734 (JS), 2012 WL 32624 (E.D.N.Y. Jan. 5, 2012) ( citing cases ). In assessing a motion for summary judgment, the task "is to identify issues to be tried, not decide them." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255-56 (1986) ( construing Fed.R.Civ.P. 56).

Under Bankruptcy Rule 9005, any claimed error of the Bankruptcy Court that is harmless is disregarded. See In re Great Atlantic & Pacific Tea Co., Inc., (Nos. 11-CV-1338 CS, 11-CV-1513 CS, 11-CV-1339 CS, 11-CV-1512 CS), 2011 WL 5546954, at *9 (S.D.N.Y. November 14, 2011). A lack of specific findings in support of a grant of summary judgment can be harmless error. See e.g., In re Sanshoe Worldwide Corp., supra at pp. 304-05. If substantial rights of an appealing party are affected by an error, the error is not harmless. Id.

DISCUSSION

In general, § 547 and related provisions of the Bankruptcy Code empower a bankruptcy trustee to recover money or property transferred by an insolvent debtor on account of a pre-existing debt to a family-member creditor if the transfer occurs during the one-year period before the debtor files a bankruptcy petition. See 11 U.S.C. § 547(b). These provisions ensure a fair and equitable distribution of property of a debtor's estate among all the debtor's creditors of the same class. See Lawson v. Ford Motor Co., 78 F.3d 30, 40 (2d Cir. 1996). A creditor receiving more than others as a result of a preferential transfer "is required to disgorge so that all may share equally." Id. Because a trustee can reach back before a bankruptcy petition to recover earlier preferential transfers of a debtor's property, creditors are less likely to force a debtor into bankruptcy by taking actions that break apart the debtor's estate. See Union Bank v. Wolas, 502 U.S. 151, 160-61 (1991).

Specifically, § 547(b) authorizes the bankruptcy court to avoid a transfer of a debtor's interest in property as a preferential transfer if the transfer was:

(1) to or for the benefit of a creditor;
(2) for or on account of an antecedent debt owed by the debtor before ...

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