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Cadlerock Joint Venture II v. Sandiford: BANKRUPTCY - no clear error finding no transfer, concealment with intent to hinder, delay, etc.

United States Bankruptcy Appellate Panel

FOR THE EIGHTH CIRCUIT

No. 08-6020

In re:
*

*
Wesley C. Sandiford and *
Florence J. Sandiford *

Debtors. *
*
*


Cadlerock Joint Venture II, L.P., * Appeal from the United States

* Bankruptcy Court for the
Appellant,
* Western District of Arkansas
*

v.
*
*
Wesley C. Sandiford, and *
Florence J. Sandiford, *

*
Appellees. *


Submitted: October 3, 2008
Filed: October 6, 2008


Before KRESSEL, Chief Judge, SCHERMER, and McDONALD, Bankruptcy
Judges.

McDONALD, Bankruptcy Judge.


Cadlerock Joint Venture II, L.P. ("Caddlerock Joint Venture") appeals from
the bankruptcy court's1 order denying its complaint objecting to the discharge of
Wesley and Florence Sandiford ("Sandifords"). We have jurisdiction over this
appeal pursuant to 28 U.S.C. 158(b)(1). For the reasons set forth below, we
affirm.

I.
The Sandifords owned retail stores at various malls in Louisiana. To operate
their businesses, the Sandifords borrowed money from Hibernia National Bank
("Hibernia"). The Sandifords' businesses failed and the loans with Hibernia
became delinquent. Hibernia obtained a state court judgment against the
Sandifords in December 2001. The parties attempted to settle the judgment, but
they were unsuccessful.

Shortly after the entry of the judgment, the Sandifords moved from
Louisiana to Arkansas and started their own real estate agency. Theresa Broussard
("Broussard"), the daughter and step-daughter of the Sandifords, moved to
Arkansas several months later. Broussard was close to the Sandifords and was
aware of their financial situation and the unpaid judgment. On December 9, 2004,
Hibernia transferred the judgment to Cadleway Properties, Inc. (Cadleway
Properties).

In September 2005, Florence Sandiford created the White Family Trust
("White Trust") and appointed Broussard as the trustee and herself as the
beneficiary. At the same time, Broussard executed a promissory note and
mortgage in favor of John White ("White"), Florence Sandiford's father-in-law.

1 The Honorable Ben T. Barry, United States Bankruptcy Judge for the
Eastern and Western Districts of Arkansas.

2


White executed a warranty deed in favor of Broussard. The Sandifords made all
payments on the note that Broussard executed.

In January 2006, the Sandifords created the Waldon Family Trust ("Waldon
Trust") and appointed Broussard trustee and themselves as beneficiaries. At the
same time, Broussard executed two contracts for the purchase of real property from
Mary Waldon. No deed or title would transfer to the Waldon Trust until the
Sandifords paid the full purchase price on the real property. The Sandifords made
all the payments on the contracts.

In May 2006, the Sandifords created the Vance Family Trust ("Vance
Trust") and appointed Broussard trustee and themselves as beneficiaries. At the
same time, Broussard executed a contract for the purchase of real property from
Robert Vance and Doris Vance. Again, no deed or title would transfer to the
Vance Trust until the Sandifords paid the full purchase price on the real property.
They made all the payments on the contract.

The Sandifords attempted to settle the judgment with Cadleway Properties.
As part of the negotiations, Cadleway Properties instructed the Sandifords to
complete a financial statement that it provided to them. The Sandifords disclosed
the existence of the trusts in the financial statement. The parties were unable to
reach an agreement. On August 8, 2006, Cadleway Properties registered the
judgment in Arkansas, but there was no attempt to collect it.

On November 27, 2006, the Sandifords filed a Chapter 7 petition with the
bankruptcy court. Cadleway Properties filed an objection to discharge on April 19,
2007. Cadlerock Joint Venture, the successor-in-interest to Cadleway Properties,
received transfer of the judgment and became the plaintiff in the case. In the
complaint, Cadlerock Joint Venture, argued that the trusts with Broussard were
fraudulent arrangements that allowed the Sandifords to retain the benefits of

3



property ownership while keeping it out of their names and away from their
creditors. Specifically, it argued that the Sandifords transferred or concealed
property in the one-year period preceding the filing of their petition pursuant to
727 of the Bankruptcy Code with the intent to hinder, delay or defraud their
creditors. The Sandifords argued that the trusts were part of a business model that
they studied in a real estate seminar. At trial, the bankruptcy court found that the
evidence was evenly balanced and denied the objection to discharge. This appeal
followed.

II.
We review a bankruptcy court's findings of fact for clear error. F. R. Bankr.

P. 8013. Findings of fact may be clearly erroneous if we have a definite and firm
conviction that the bankruptcy court committed a mistake. Stonitsch v. Commerce
Bank of Kansas City (In re Amco Products, Inc.), 50 B.R. 723, 724 (Bankr. W.D.
Mo. 1983). We conduct a de novo review of a bankruptcy court's conclusions of
law. Wintz v. American Freightways, Inc. (In re Wintz Cos.), 230 B.R. 840, 844
(B.A.P. 8th Cir. 1999).
III.
Cadlerock Joint Venture proceeded under 11 U.S.C. 727(a)(2), (a)(3),
(a)(4)(A) and (a)(4)(C) in their case before the bankruptcy court. However, it
abandoned all of those theories except 727(a)(2) in this appeal. Section
727(a)(2) states:

the court shall grant the debtors a discharge, unless . . .

the debtor, with intent to hinder, delay, or defraud a

creditor . . . has transferred . . . or concealed . . . property

of the debtor, within one year before the date of the filing

4



of the petition; or property of the estate, after the date of
the filing of the petition.

To prevail on its complaint, Cadlerock Joint Venture needed to show that (1) the
Sandifords actions took place within twelve months prior to the filing of their
petition for bankruptcy relief; (2) that the Sandifords took the actions with the
intent to hinder, delay or defraud their creditors; (3) that the Sandifords themselves
took the actions; and (4) that the Sandifords actions consisted of transferring or
concealing property. City Natl Bank of Ft. Smith, Ark. v. Bateman (In re
Bateman), 646 F.2d 1220, 1222 (8th Cir. 1981). The Sandifords did not contest the
first, third and fourth elements of the action. Therefore, the crux of Cadlerock
Joint Ventures argument was the second element; namely did the Sandifords
transfer the property with the intent to hinder, delay or defraud their creditors.

There are two central issues in this case. First, we must decide whether or
not the bankruptcy court properly applied presumptions and the burden of proof.
Second, we must determine whether or not the bankruptcy court clearly erred in
granting the Sandifords their discharge.

A.
The bankruptcy court properly applied the presumptions and the burden of
proof.
The plaintiff has the burden of proof in a complaint objecting to a debtors
discharge. F. R. Bankr. P. 4005. Moreover,

[i]n all civil actions and proceedings not otherwise
provided for by Act of Congress or by these rules, a
presumption imposes on the party against whom it is
directed the burden of going forward with evidence to
rebut or meet the presumption, but does not shift to such
party the burden of proof in the sense of the risk of

5



nonpersuasion, which remains throughout the trial upon
the party on whom it was originally cast.

F. R. Evid. 301. There is a presumption of fraud in 727(a)(2) cases when a
debtor transfers valuable property without payment. The Abbott Bank -
Hemingford v. Armstrong (In re Armstrong), 931 F.2d 1233, 1239 (8th Cir. 1991)
(citing City Natl Bank. V. Bateman (In re Bateman), 646 F.2d 1220, 1222 (8th Cir.
1981) (under predecessor statute to section 727(a)(2)). Once a gratuitous transfer
is shown, the burden then shifts to the debtor to prove his intent was not to hinder,
delay, or defraud his creditors. Id. In this case, Cadlerock Joint Venture confuses
the burden of production with the burden of proof. At trial, it introduced evidence
that the Sandifords made a gratuitous transfer of property to a near relative. This
created a presumption of fraud under Armstrong. However, the Sandifords
rebutted that presumption by offering evidence of a non-fraudulent reason for the
transfer of the property; namely, they created the trusts to hold property until the
property increased in value to create enough equity to make a profit on the sale of
the property. The Sandifords learned this business model in the real estate
seminars they attended. The ultimate burden of proof remained with Cadlerock
Joint Venture. The bankruptcy court determined that the evidence was equally
split between the parties. Thus, Cadlerock Joint Venture failed to meet its burden
of proof and the bankruptcy court ruled in favor of the Sandifords. We see no
reason to disturb its decision. Therefore, we hold that the bankruptcy court
properly applied presumptions and the burden of proof in this case.
B. The bankruptcy court did not commit clear error.
The second issue we must determine is whether or not the bankruptcy court
committed clear error. As previously stated, we must have a definite and firm
conviction that the bankruptcy court made a mistake in making a finding of clear
error. Stonitsch, 50 B.R. at 724. A bankruptcy courts decision is not clearly

6



erroneous if there are one or more permissible views of the evidence in a case.
Moon v. Anderson (In re Hixon), 387 F.3d 695, 700 (8th Cir. 2004). Here, the
bankruptcy court agonized over its decision and made great efforts to convey to the
parties that the evidence was very close and that the courts decision could go
either way. After our review of the record, we believe that there were alternative
permissible views of the evidence in this case. Therefore, we hold that the
bankruptcy court did not commit clear error in reaching its decision.

IV.
The bankruptcy court properly applied the presumptions and the burden of
proof in this case. Moreover, it did not clearly err in reaching its decision.
Accordingly, we affirm the judgment of the bankruptcy court.

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