Henshaw v. Field (In re Henshaw)

585 B.R. 605
CourtDistrict Court, D. Hawaii
DecidedFebruary 8, 2018
DocketCV NO. 17–00329 DKW–RLP; CV NO. 17–00341 DKW–RLP (Consolidated Cases); Bankr. Case No. 11–00853; Adv. Pro. No. 12–90070
StatusPublished
Cited by3 cases

This text of 585 B.R. 605 (Henshaw v. Field (In re Henshaw)) is published on Counsel Stack Legal Research, covering District Court, D. Hawaii primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Henshaw v. Field (In re Henshaw), 585 B.R. 605 (D. Haw. 2018).

Opinion

Derrick K. Watson, United States District Judge

INTRODUCTION

Appellants Philip Daniel Henshaw and Barbara Wressell Henshaw (the "Henshaws")1 appeal the June 28, 2017 Final Judgment entered in Adversary Proceeding No. 12-90070, which rendered a final decision on the merits in accordance with the bankruptcy court's June 20, 2017 summary judgment determination in favor of Trustee Dane S. Field ("Trustee"). The bankruptcy court determined that (1) the Trustee was a bona fide purchaser for *608value who may be entitled to sell both Debtors and the Henshaws' 50% ownership interests in the subject real property held as joint tenants, pursuant to 11 U.S.C. § 363(b) and (h), and (2) the Trustee was entitled to summary judgment on the Henshaws' Counterclaim for reformation, which sought to reform the deed to the property to reflect the Debtors and Henshaws' intended ownership interests. The Henshaws appeal these rulings.

Although the bankruptcy court granted his motion for summary judgment in the Adversary Proceeding below, the Trustee cross-appeals the court's conclusion that the Counterclaim did not amount to an impermissible collateral attack on a prior judgment entered in another adversary proceeding between these same parties. Because the Court AFFIRMS the decision of the bankruptcy court that the Trustee was a bona fide purchaser without notice of the Henshaws 2007 Reformation claim, the Court does not reach the issue raised in the Trustee's cross-appeal.

BACKGROUND

I. Bankruptcy Proceedings 2

On March 29, 2011, Debtors Michael Dylan Henshaw and Kimberly Henshaw filed their chapter 7 petition, and the Trustee was appointed to oversee the Debtors' estate. See Dkt. Nos. 1 and 3 in Bankr. No. 11-00853. The Trustee initiated two adversary proceedings concerning the real property jointly owned by the Debtors' estate and the Henshaws, commonly known as Units A and B of "The Power Farm" condominium project located at the street address now known as 76-875 and 76-875A, Hualalai Road, Kailua-Kona, Hawaii 96740, designated as TMK 3-7-6-007-019, C.P.R. Nos. 0001 and 0002 (the "Property"). The purchase price of the Property was $680,000.00. The Henshaws contributed $595,149.20 by refinancing their home in San Diego and $83,000.00 from retirement account funds, for a total of $678,149.20. In comparison, Debtors contributed $6,970.20 towards escrow costs. See Adv. Counterclaim ¶ 6, Dkt. No. 8-1 (Ex. 1).

The Henshaws now assert that, although title was taken as "joint tenants," the parties did not intend to indicate upon recordation that the Property was owned in equal shares.3 The parties "mistakenly" believed that title taken as a joint tenancy would simplify their estate planning, "without changing the current ownership," which was intended to remain entirely with the Henshaws. Adv. Counterclaim ¶ 7, Dkt. No. 8-1. The Henshaws contend that the magnitude of this mistake did not become known until the Trustee filed the first adversary proceeding in 2011.

*609A. Avoidance Action (Adv. Pro. No. 11-90105 )

On December 13, 2011, the Trustee filed an adversary complaint against the Henshaws in Adv. Pro. No. 11-90105 ("Avoidance Action"), asserting that Debtors had a 50% interest in the Property by operation of the June 22, 2007 deed ("2007 deed"), and had fraudulently transferred their 50% interest in the Property to the Henshaws by way of a Quitclaim deed dated December 30, 2009, recorded with the Bureau of Conveyances of the State of Hawaii ("Bureau") as Document No. A-46450946, on March 19, 2010 ("2010 Quitclaim deed"). See Dkt. No. 8-1 (Ex. 5).

The adversary complaint asserted that Debtors' transfer of their joint interest in the Property was fraudulent in violation of 11 U.S.C. §§ 544(b) and 548(a)(1), and the Hawaii Uniform Fraudulent Transfer Act, Hawaii Revised Statutes ("HRS") § 651C-4(a). On August 24, 2012, the bankruptcy court entered its "Order Granting Plaintiff's Motion for Summary Judgment Filed May 22, 2012, and Vesting Title to Real Property (TMK 3-7-6-007-019, C.P.R. Nos. 0001 and 0002) in Debtors and Defendants as Joint Tenants" and "Judgment Vesting Title to Real Property (TMK 3-7-6-007-019, C.P.R. Nos. 0001 and 0002) in Debtors and Defendants as Joint Tenants; Exhibit 'A' " in Adv. Pro. No. 11-90105 ("Avoidance Order and Judgment"). The Avoidance Order and Judgment voided the pre-petition transfers of Debtors' one-half ownership interest in the Property to the Henshaws as constructively fraudulent transfers, and vested title to the Property in Debtors and the Henshaws as joint tenants, as described in the 2007 deed. The 2010 Quitclaim deed was rendered "null and void, having no effect whatsoever on the properties." Avoidance Order at 4, Dkt. No. 26 in Adv. Pro. No. 11-90105. The Henshaws appealed the Avoidance Order and Judgment to the district court.4

In its order affirming the bankruptcy court, the district court applied the parol evidence rule to the 2007 deed "to prevent admission of extrinsic evidence suggesting that the subject properties were held in anything other than a joint tenancy," reasoning that, "[a]pplication of this rule in this action makes common sense-third parties, including the Trustee, must be able to rely on the terms of a recorded deed." In re Henshaw , 485 B.R. 412, 421 (D. Haw. 2013), aff'd , 670 Fed.Appx. 563 (9th Cir. 2016). The district court further explained that:

if third parties such as creditors cannot rely on the face of a deed, then any assets held in joint tenancy will require investigation. It is for this very reason that "creditors are entitled to rely 'on the face of the deed,' " regardless of whatever the equitable interests may be between the joint tenants. See In re Risler , 443 B.R. 508, 510 (Bankr. W.D. Wis. 2010) (quoting In re Teranis , 128 F.3d [469] at 472 [ (7th Cir. 1997) ] ). Indeed, especially in the bankruptcy context, allowing extrinsic evidence would open the door to collusion given that joint tenants' interests will often be aligned to shield assets from the bankruptcy trustee and/or creditors. The parol evidence rule is designed to prevent this type of possible fraud-the "rule discourages *610interested witnesses to a contract from committing fraud, perjury, or unintentional invention by making statements that the contract did not actually represent the agreement of the parties."

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Cite This Page — Counsel Stack

Bluebook (online)
585 B.R. 605, Counsel Stack Legal Research, https://law.counselstack.com/opinion/henshaw-v-field-in-re-henshaw-hid-2018.