Walters v. Farmers Korner, Inc. (In re Smith)

535 B.R. 374
CourtUnited States Bankruptcy Court, D. Colorado
DecidedAugust 17, 2015
DocketCase No. 12-27312 SBB; Adversary Proceeding No. 14-01065 SBB
StatusPublished

This text of 535 B.R. 374 (Walters v. Farmers Korner, Inc. (In re Smith)) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, D. Colorado primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Walters v. Farmers Korner, Inc. (In re Smith), 535 B.R. 374 (Colo. 2015).

Opinion

FINDINGS OF FACT AND CONCLUSIONS OF LAW AND ORDER

The Honorable Sidney B. Brooks, United States Bankruptcy Judge

THIS MATTER comes before the Court on the Complaint filed by Plaintiff Jared Walters, Chapter 7 trustee (the “Trustee”) and the Amended Answer filed by Defendant Farmers Korner, Inc. (“Farmers Korner”). Trial in this adversary proceeding was held on June 18, 2014. The Court, having reviewed the pleadings and considered the testimony, exhibits, arguments of counsel, and legal authority cited by the parties, makes the following findings of fact and conclusions of law in favor of the Trustee and against Farmers Korner.

I. JURISDICTION

The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334(b) and (e) and this is a core proceeding under 28 U.S.C. §§ 157(b)(2)(A) and (F) as it involves the administration of the underlying bankruptcy estate and proceedings to determine, avoid or recover preferences.

II. PROCEDURAL BACKGROUND

The Trustee commenced this adversary proceeding by filing his Complaint against Farmers Korner seeking, among other re-' [376]*376lief, to 'avoid under 11 U.S.C. § 547(b)1 certain transfers of motor vehicles and trailers made by Debtor Kevin Ray Smith (the “Debtor”) to Farmers Korner between ninety days and one year before the date Debtor filed his petition.

On December 29, 2014, the Trustee and Farmers Korner (together the “Parties”) submitted to the Court a Joint Pretrial Statement (the “Joint Pretrial Statement”).2 The matter was tried to the Court on June 18, 2014.

At trial, the Parties stipulated to the admission of Trustee’s Exhibits 1-26, 29, 31 and 3437, and Farmers Korner’s Exhibits A-S. Trustee’s Exhibits 28, 30 and 32 were not stipulated to but were offered and admitted into evidence. Farmers Korner’s Exhibits T-W were not stipulated to but were offered and admitted into evidence. Consequently, all of the Trustee’s and Farmers Korner’s exhibits were admitted into evidence except for Trustee’s Exhibits 27 and 33, which were not offered into evidence.

III. FINDINGS OF FACT

Many of the following facts were stipulated to by the Parties in their Joint Pretrial Statement. In large part, the Stipulated facts are identified by reference to the numbered paragraphs found in the Statement of Stipulated and Uncontested Facts (“Statement of Stipulated Facts”) set forth in the Joint Pretrial Statement, which Statement of Stipulated Facts is adopted by the Court in its entirety. Other factual findings are based upon exhibits admitted and/or witness testimony provided at trial.

Background

1. On August 17, 2012, Debtor filed for relief under Chapter 7 of the Bankruptcy Code (the “Petition Date”).3 Debtor resides at 252 Red Rim Drive, Grand Junction, Colorado 81507 and works full time in Kennewick, Washington.4

2. Trustee is the duly appointed Chapter 7 Trustee of the bankruptcy estate of Debtor, Case No. 12-27312 SBB.5

3. Farmers Korner is a Colorado corporation. At all times relevant, Laurence E. Smith (“Mr.Smith”) has been and is the sole shareholder and person in control of Farmers Korner. The Debtor has never been a shareholder, officer or director of Farmers Korner.6 The primary business of Famers Korner is the operation of a convenience store.7 Farmers Korner’s is not in the business of lending money.8

4. Mr. Smith is Debtor’s father.9

5. At all relevant times, Debtor was the sole owner of Kevin’s Performance Center, Inc. d.b.a. Performance Pools and Spas (“KPC”).10 KPC operates as Performance Pools and Spas.11 Debtor has been the only shareholder of KPC and Mr. Smith has never been a shareholder, officer or director of KPC.12 KPC’s primary [377]*377business consisted of sales, service and installation of pools and spas.13 KPC maintained a storefront at 2575 Highway 6 and 50, Grand Junction, Colorado 81501.14 KPC maintained a storage lot at 202 Grant Road, Grand Junction, Colorado 81507.15 KPC ceased operations approximately March 1, 2012, prior to the Petition Date.16

The Promissory Note

6. On or about December 27, 2007, Farmers Korner executed a promissory note payable to Alpine Bank in the original principal amount of $126,056.60 (the “2007 Note”).17 Farmers Korner then executed another promissory note on or about February 10, 2009 payable to Alpine Bank in the original principal amount of $50,000 (the “2009 Note).18

7. Around 2009, the Debtor needed financing for his business KPC, but was unable to obtain floor plan financing for KPC through traditional means due to the downturn of the economy, restrictive lending requirements, and other factors.19 Accordingly, Debtor approached his father, Mr. Smith, for financing.20 To finance operations of KPC, on or about December 2, 2009, the parties entered into what is titled a “Secured Promissory Note” by and between “Kevin Ray Smith d.b.a Performance Pools and Spas” as the borrower-obligor and “Farmer’s Korner, Inc. and Laurence Smith” as the lender-payees, in the original principal amount of $100,000.00 (the “Promissory Note”).21

8. The testimony from Mr. Smith is not entirely clear, but it appears draws were made on Farmers Korner’s lines of credit represented by the 2007 Note and 2009 Note and those draws acted as advances and consideration for the Promissory Note.22

9. The Promissory Note provides that it was to be secured by all owned and after-acquired inventory and equipment of KPC and Debtor pursuant to a separate security agreement and U.C.C. filing.23 On December 8, 2009, a UCC Financing Statement was filed with the Colorado Secretary of State reflecting a lien held by Farmers Korner’s on “any and all equipment and inventory now owned or hereinafter acquired” belonging to KPC and the Debtor.24

10. However, Farmers Korner’s security interests were not notated on the Certificates of Title for the vehicles and trailers at issue here, and Farmers Korner has never made application to the Colorado Department of Revenue to have its lien notated on the respective Certificates of Title pursuant to the Promissory Note.25

11. Therefore, notwithstanding the fact that the Promissory Note was titled as “Secured” by the parties, Farmers Kroner [378]*378did not have a perfected lien on motor vehicles of the Debtor or KPC.26

12.

Free access — add to your briefcase to read the full text and ask questions with AI

Related

Rupp v. United Security Bank (In Re Kunz)
489 F.3d 1072 (Tenth Circuit, 2007)
Hill v. Koching (In Re Garberding)
338 B.R. 463 (D. Colorado, 2005)
Solomon v. Barman (In Re Barman)
237 B.R. 342 (E.D. Michigan, 1999)
Wadsworth v. Viveros (In Re Viveros)
456 B.R. 525 (D. Colorado, 2011)

Cite This Page — Counsel Stack

Bluebook (online)
535 B.R. 374, Counsel Stack Legal Research, https://law.counselstack.com/opinion/walters-v-farmers-korner-inc-in-re-smith-cob-2015.