FRAUDULENT CONVEYANCES Nassau Academy of Law CLE Live ...

397 B.R. 642 Page 8397 B.R. 642(Cite as: 397 B.R. 642)Defendant's PositionAs noted above, Defendant asserts that this Court cannot,or, in the alternative, should not upset the SettlementAgreement and the state court's Judgment of Divorce. Inthe alternative, Defendant argues she did not receive anavoidable transfer as a matter of law based upon the considerationexchanged, and that neither she nor her parentsreceived a preference. Finally, Defendant argues thisCourt is precluded under the Rooker-Feldman doctrinefrom reviewing the Decree of Divorce.AnalysisAlthough this Court disagrees with Defendant's analysisof Rooker-Feldman, it *651 does agree with the Defendant'sinvocation of BFP, and, for the reasons statedherein, will grant partial summary judgment in favor ofDefendant.Inapplicability of Rooker-Feldman[6] This Court rejects Defendant's assertion that Rooker-Feldman applies. This Court instead agrees with andadopts the Fifth Circuit's analysis in Erlewine and JudgeAlley's analysis in Bledsoe as to why the Trustee's lawsuitis not prohibited by the Rooker-Feldman doctrine.[7] The Fifth Circuit in In re Erlewine, 349 F.3d 205,210-11 (5th Cir.2003) stated: "[T]he divorce decree is notentitled to preclusive effect because the Trustee was not aparty to the state court divorce proceedings, nor was he inprivity with any party." The Court in In re Bledsoe, 350B.R. 513, 516 (Bankr.D.Or.2006) stated:The Rooker-Feldman doctrine is a recognition of theprinciple that federal courts, other than the U.S. SupremeCourt, lack authority to exercise appellate reviewover a state court's judicial decision. The doctrine appliesonly to individuals that were parties to the statecourtproceeding; nonparties to the state-court proceedingcannot be bound. While this fraudulent transfer actiondoes not literally seek appellate review of the dissolutionjudgment, the doctrine may be applicable if thefederal proceeding is a "de facto" appeal of the stateproceeding or involves an issue "inextricably intertwined"with a forbidden de facto appeal. agree with thecourt in In re: Erlewine, 349 F.3d 205, 210-11 (5thCir.2003), however, that the Trustee is not precluded byRooker-Feldman from bringing an action in bankruptcycourt alleging a fraudulent transfer.Bledsoe, 350 B.R. at 516 (internal citations omitted).Similarly here, the Trustee can sue to set aside the DivorceDecree and the underlying Settlement Agreement,as he was not a party to either.BFP Case[8][9] In BFP v. Resolution Trust Corp., 511 U.S. 531,114 S.Ct. 1757, 128 L.Ed.2d 556 (1994), the SupremeCourt considered the following facts. In October 1989,BFP, a partnership formed for the purpose of purchasing ahome, filed for Chapter 11 bankruptcy relief. Prior to thepetition date, BFP had taken title to a home subject to afirst lien deed of trust in favor of Imperial Savings Association("Imperial") to secure payment of a loan of$356,250 made to the Pedersens in connection with BFP'sacquisition of the home. [FN6] Following defaults and adelay occasioned by an involuntary bankruptcy filingagainst BFP, Imperial foreclosed its lien against the homein accordance with California law. The home was purchasedat the foreclosure sale by Paul Osborne for$433,000. BFP, 511 U.S at 533-34, 114 S.Ct. 1757.FN6. BFP then granted a second lien deed oftrust as security for a $200,000 promissory note.After filing bankruptcy, BFP commenced an adversaryproceeding seeking to set aside the conveyance of thehome to Osborne, asserting that the foreclosure sale constituteda fraudulent transfer under § 548 of the BankruptcyCode. BFP alleged that the home was actuallyworth over $725,000 at the time of the sale to Osborne for$433,000.Acting on separate motions, the Bankruptcy Courtgranted summary judgment in favor of Imperial. [FN7]The Bankruptcy *652 Court found, inter alia, that theforeclosure sale had been conducted in compliance withapplicable California laws and was neither collusive norfraudulent. The Ninth Circuit Bankruptcy Appellate Panelaffirmed in a divided opinion. In re BFP, 132 B.R. 748(9th Cir.BAP (Cal.)1991).FN7. During the course of the proceedings, theResolution Trust Corporation ("RTC") was appointedas receiver of Imperial and appeared inthe litigation on behalf of Imperial. This appearancedid not, however, impact the outcome of thecase.The Supreme Court identified the issue as follows:This case presents the question whether the considerationreceived from a noncollusive, real estate mortgage© 2009 Thomson Reuters. No Claim to Orig. US Gov. Works.