United States District Court, D. Utah
In re THEODORE WILLIAM WHITE, JR. and PORSCHA SHIROMA, Debtors.
Defendants/Appellees. J. KEVIN BIRD, Trustee, Plaintiff/Appellant,
MEMORANDUM DECISION AND ORDER AFFIRMING THE ORDER OF
THE BANKRUPTCY COURT GRANTING DEFENDANTS' MOTION FOR
SUMMARY JUDGMENT ON TRUSTEE'S FIRST CLAIM FOR
Stewart, District Judge.
case before the Court arises out of an appeal by Appellant J.
Kevin Bird, Trustee (“Trustee”) of the estate of
Theodore William White, Jr. and Porscha Shiroma
(collectively, “Debtor”) of the Bankruptcy
Court's order granting Appellees' Ryan B. White,
personal representative of the estate of Theodore W. White,
Sr., and Myrna White (“Defendants”) motion for
legal battles began over twenty years ago, in 1998. He was
wrongfully convicted and spent approximately seven years in
prison before being exonerated and released in 2005. On
August 28, 2008, Debtor obtained a judgment of $15 million
against those who had wrongfully accused him. One month later
and prior to receiving the money from the judgment, Debtor
executed a promissory note (“Note”) on September
29, 2008, indicating that $1 million would be paid to
Defendants and four other payees once Debtor received full
payment of the compensatory damages portion of the judgment.
Debtor received the money judgment on July 21, 2011, and the
following day, Debtor paid $1 million to the Defendants.
30, 2014, Debtor filed for Chapter 7 bankruptcy. On May 30,
2016, Trustee filed an adversary proceeding against
Defendants to recover the $1 million payment made by Debtor
to Defendants, citing 11 U.S.C. §§ 544 and 550 and
Utah's adoption of the Uniform Fraudulent Transfer Act
(“UFTA”), specifically Utah Code Annotated
§§ 25-6-5 and -6. Under those statutes, Trustee is
seeking to avoid the payment as constructively fraudulent.
29, 2018, Defendants filed a motion for summary judgment as
to Trustee's first claim for relief in the Bankruptcy
Court for the District of Utah. The Bankruptcy Court granted
Defendants' motion for summary judgment on September 6,
2018. Trustee has appealed the Bankruptcy
Court's order to this Court.
SUMMARY JUDGMENT STANDARD
reviewing a bankruptcy court's grant of summary judgment,
the district court reviews the case de novo applying
the same legal standards used by the bankruptcy court, namely
Fed.R.Civ.P. [56(a)].” Summary judgment is appropriate
“if the movant shows that there is no genuine dispute
as to any material fact and the movant is entitled to
judgment as a matter of law.”In considering whether a
genuine dispute of material fact exists, the Court determines
whether a reasonable jury could return a verdict for the
nonmoving party in the face of all the evidence
presented. The Court is required to construe all
facts and reasonable inferences in the light most favorable
to the nonmoving party.
review, the Court finds that pursuant to 11 U.S.C. § 544
and Utah Code Ann. § 25-6-5 and -6, Trustee is barred
from contesting the $1 million transfer because he is
time-barred from contesting the validity of the Note.
to § 544, “a Trustee has the rights and powers to
avoid a broad range of property transfers made, or
obligations incurred by a debtor” and
therefore“[u]nder § 544(b), a ‘trustee may
avoid any transfer of an interest of the debtor . . . that is
voidable under applicable law by a[n] [unsecured]
creditor.” “[T]rustee's powers under
[§ 544(b)] are predicated on the non- bankruptcy law,
usually state law, applicable to the transaction sought to be
avoided.” So here the Court must look to the
applicable state law, Utah's version of the Uniform
Fraudulent Transfer Act, specifically Utah Code Ann.
§§ 25-6-5 and -6. These sections outline the
parameters for avoiding fraudulent transfers or obligations
by present or future creditors. However, a statute of
limitations applies to bringing a claim to contest the
validity of a transfer or obligation under §§
25-6-5 and -6. According to § 25-6-10, a claim for
relief brought under §§ 25-6-5 and -6 is
“extinguished unless action is brought . . . no later
than four years after the transfer was made or the obligation
was incurred . . . .”
order to contest the transfer as fraudulent, Trustee must
have the ability to invalidate the “underlying contract
as a fraudulently incurred obligation.” But he lacks
that ability here. Debtor became contractually obligated to
Defendants to pay $1 million when the Note was signed by all
parties on September 29, 2008. Almost three years later, on
July 22, 2011, Debtor paid Defendants the $1 million
designated in the Note. Debtor filed for bankruptcy on May
30, 2014, well within the four years that Trustee contends
would allow him to challenge the validity of the transfer.
But the time to challenge the Note had passed at that point,
expiring in 2012. Because Trustee brought the claim
contesting the transfer well after the time to contest the
Note had run out, under § 25-6-10, Trustee is
time-barred from avoiding the Note and therefore cannot
attempt to invalidate the $1 million transfer under §
544 and §§ 25-6-5 and -6.
even if Trustee had brought a claim under 11 U.S.C. §
541, Trustee, stepping into the shoes of a debtor,
cannot contest the validity and enforceability of the Note
for lack of consideration. A “trustee . . . is bound by
any waiver of a defense made by the debtor before the filing
of its petition in bankruptcy . . . .” In this case,
Debtor paid Defendants the $1 million as soon as he received
the money, well before filing for bankruptcy, and therefore
fulfilling his responsibilities under the Note by meeting the
condition to pay Defendants upon receipt of the settlement
money. Therefore, Debtor's act in delivering the $1
million payment to Defendants constructively waived his
right, and as a result Trustee's right, to contest the
validity of the Note for lack of consideration later on.
Trustee is consequently barred from pursing a lack of
consideration claim under § 541.
upon the conclusions reached above, the Court need not
address Trustee's remaining arguments. Therefore, the
Court affirms the final order of the Bankruptcy Court
granting Defendants' motion ...